Professional Documents
Culture Documents
adidas has a clear mission – “to be the leading sports brand Inspired by its roots in sports and women’s fitness, Reebok TaylorMade-adidas Golf is a leader in the industry and the
in the world”. To accomplish this mission, the brand comprises is a global brand that is committed to developing innovative number one metalwood supplier. It focuses on consumers
two divisions that reflect two distinct market segments: Sport products which will allow Reebok to own Women’s Fitness, who seek the most innovative, performance-enhancing golf
Performance and Sport Style. Product and marketing initiatives challenge Men’s Sport and revive Classics. The Reebok equipment available, including technologically superior clubs,
at adidas primarily focus on five global priorities: football, segment also comprises the brands Reebok-CCM Hockey balls, footwear and apparel. TaylorMade-adidas Golf markets
running, training, basketball and Originals. and Rockport. products under the brand names TaylorMade, adidas Golf and
Ashworth.
Net sales € in millions 7,821 7,113 10% Net sales € in millions 2,148 2,333 (8%) Net sales € in millions 812 804 1%
Gross profit € in millions 3,802 3,370 13% Gross profit € in millions 795 902 (12%) Gross profit € in millions 359 360 (0%)
Gross margin 48.6% 47.4% 1.2pp Gross margin 37.0% 38.7% (1.7pp) Gross margin 44.3% 44.7% (0.5pp)
Operating profit € in millions 1,098 920 19% Operating profit € in millions (7) 109 (106%) Operating profit € in millions 78 65 20%
Operating margin 14.0% 12.9% 1.1pp Operating margin (0.3%) 4.7% (5.0pp) Operating margin 9.6% 8.1% 1.5pp
Number of employees 23,202 18,678 24.2% Number of employees 8,189 6,751 21.3% Number of employees 1,852 1,393 33.0%
2005 1) 6,636
Operating highlights (€ in millions)
2)
2006 10,084
Net sales 10,799 10,299 4.9%
EBITDA 1,277 1,165 9.7% 2007 10,299
Operating profit 1,070 949 12.7%
2008 10,799
Net income attributable to shareholders 642 551 16.4%
High-single-digit currency-neutral sales growth Net sales reach € 10.8 billion; Low- to mid-single-digit currency-neutral sales decline
Group currency-neutral sales grow 9 %
Bring major new concepts, technology evolutions Major 2008 product launches: Bring major new concepts, technology evolutions
and revolutions to market ---- adidas F50 TUNIT ™ football boot, new technologies and revolutions to market
in adiSTAR® and adiZero™ running shoe families,
men’s TECHFIT Power WEB, miCoach training system
---- Reebok Premier Verona KFS running shoe, Premier
SmoothFit™ Cushion, Freestyle Cities collection
---- Rockport Rockport Signature Series
---- TaylorMade-adidas Golf Tour Burner® TP driver,
r7® CGB MAX Limited driver, my TP ball,
TOUR 360 LTD shoe
Currency-neutral sales to grow at all brands Currency-neutral sales increase 14 % at adidas, grow 7 % On a currency-neutral basis:
and in all regions except North America at TaylorMade-adidas Golf but decrease 2 % at Reebok; ---- low- to mid-single-digit sales decline for adidas segment
currency-neutral sales grow in all regions except North ---- at least stable sales for Reebok segment
America ---- low-single-digit sales increase at TaylorMade-
adidas Golf
Increase gross margin to a level between 47.5 and 48.0 % Gross margin: 48.7 % Gross margin decline
Operating margin to be at least 9.5 % Operating margin: 9.9 % Operating margin decline
Further reduce operating working capital as a percentage Operating working capital as a percentage of sales further Reduce operating working capital as a percentage of sales
of sales reduced to 24.5 %
Capital expenditure range € 300 million – € 400 million Capital expenditure: € 380 million Capital expenditure range € 300 million – € 400 million
Maintain or further reduce net borrowings Net borrowings increased to € 2.189 billion; Reduce net borrowings
despite share buyback year-end financial leverage: 64.6%
Net income to grow at least 15 % Highest ever net income attributable to shareholders Net income decline
at € 642 million (+16 %)
Further increase shareholder value Share buyback programme in an amount of € 409 million Further increase shareholder value
completed in October; unchanged dividend of € 0.50 per share;
adidas AG share price declines 47 %
We live sport like no other company. And we strive to
be the global leader in the sporting goods industry.
That’s our goal. We know our strengths. We know
where to attack. We have a dynamic team. We share
values such as performance, passion, integrity and
diversity. And we have lots of energy. Our next moves
are planned. Our tactics are set. We’re ready to go to
the next round. And we have a strategy:
Growth
adidas Group
> 35 %
Emerging markets > 35% of sales Core to our growth
strategy is increasing our exposure to high-growth
emerging markets. Our industry is truly global. Sport
and a sporting lifestyle are part of everyday lives.
With an unrivalled product portfolio and leadership in
product innovation and design, we strive to connect
to consumers in all corners of the world. This is our
game plan for reaching more than 35% of sales in the
emerging markets.
16
Dwight Howard
adidas
Setting goals and achieving them – this is what Dwight
Howard has been doing ever since he started playing
basketball. At the age of 22 years, Dwight Howard was the
youngest player on the gold medal winning US basketball
team at the Beijing Olympic Games. He has a clear goal
for 2009: To win 16 games throughout the playoffs and
lead his teammates to the ultimate victory – the NBA
Championship. “The game plan to reach this goal is to
play hard every day and play as a team.”
4 Kapitel Head II
Distribution
adidas Group
The first moment of truth. Brand statement. Right product. Right store.
Right time. Closest to the consumer.
> 35 %
Controlled space > 35% of sales Controlled space is becoming
one of our most dynamic business models. Encompassing
own-retail stores, e-commerce and retail space management
such as shop-in-shops – expanding these initiatives is a key
component of providing the highest level of customer service
to our retail partners and deepening our connection with
the consumer. Our goal is to have at least 35% of our sales in
controlled space. And our game plan will take us there.
Stay
No. 1
Sergio Garcia
TaylorMade-adidas Golf
Sergio Garcia became the first European-born player in
more than a decade to attain the No. 2 position in the
World Golf Ranking. His swing made him famous. His
precision is legendary. His goal for 2009? To win a Major,
one of the four most prestigious annual tournaments in
professional golf. And he will get there by following his
game plan: “Hit the right shot at the right time, focus on
my skills and use them to their full capacity.”
6 Kapitel Head II
Profitability
adidas Group
Win a
Major >11
Operating margin > 11% Improving our operating margin is a
cornerstone to increasing shareholder value. It is a significant
%
The resources for realising our vision. Efficient and diverse. With-
standing the elements. Currency to execute.
1
Regain
No.
< 50 %
Financial leverage < 50% Only through a strong balance sheet
can we build our business for the future and achieve our
potential. We continually strive to improve the efficiency of our
business cycle. We scope our investments in line with the
priorities of our strategic plan. We seek diversity in our capital
structure to achieve superior returns to our stakeholders. We
will reduce our financial leverage to under 50% by following
our game plan.
Ana Ivanovic
adidas
Ana Ivanovic has always had big dreams. The 21-year-old,
winner of the 2008 Roland Garros title, believes that
making dreams come true is a mixture of desire, spirit
and hard work. Her two biggest goals for the foreseeable
future are to win another Grand Slam tournament
and regain the World No. 1 ranking. “I try to focus on
improving my game and fitness every day. This is my
game plan.”
We are driven by our passion for sports. And have been
for more than 60 years. Our Group is defined by enthu-
siasm, ambition and persistence. Like every athlete,
we set ourselves ambitious goals and give our all to
achieve them. We’ve made this experience our own.
Strong brands, innovative products, timeless designs
and ground-breaking technologies are the key to our
success. And so is our strategy:
10 Kapitel Head II
1
Group Management Report – Our Group To Our Shareholders
Structure and Strategy 044 Interview with the CEO 012
Table of Contents
Corporate Mission Statement 044 Executive Board 018
Group Brands and Divisions 045 Supervisory Board Report 020
Group Strategy 046 Supervisory Board 025
adidas Strategy 048 Corporate Governance Report 026
Reebok Strategy 052 Compensation Report 030
TaylorMade-adidas Golf Strategy 056 Operational and Sporting Highlights 2008 034
Internal Group Management System 058 Our Share 038
Major Locations and Promotion Partnerships 062
2
Corporate Functions 064
Global Operations 064
Sustainability 067
Employees 070
Research and Development 074
3
Economic and Sector Development 080
Income Statement 082
Balance Sheet and Cash Flow Statement 090
Treasury 093
Disclosures pursuant to § 315 Section 4 of the 096
German Commercial Code and Explanatory Report
Business Performance by Segment 099
adidas Business Performance 099
Reebok Business Performance 102
TaylorMade-adidas Golf Business Performance 105
4
Risk and Opportunity Report 107 Products and Campaigns
Subsequent Events and Outlook 120
Consolidated Financial Statements adidas 128
Responsibility Statement 150 Products and Campaigns
Independent Auditor’s Report 151 Reebok 138
Consolidated Balance Sheet 152 Products and Campaigns
Consolidated Income Statement 153 TaylorMade-adidas Golf 146
Consolidated Statement of Cash Flows 154 Products and Campaigns
Consolidated Statement of Recognised 156
Income and Expense
5
Notes 157
Statement of Movements of Intangible 196
and Tangible Assets and Financial Assets
Shareholdings 198
Segmental Information 204
Ten-Year Overview 206
Glossary 208
Index 214
Financial Calendar 2009 215
Interview with the CEO
In 2008, the adidas Group delivered a strong financial
performance. Positive momentum in the adidas and
TaylorMade-adidas Golf segments propelled the Group
to a 9% currency-neutral sales increase and 20% earnings
per share growth. 2009, however, will be a challenging
year. Nevertheless, the adidas Group is sticking to its
“game plan”. With strong market positions around the
globe and a full pipeline of exciting new brand initiatives,
the Group is ready to take advantage of the opportunities Herbert Hainer
these difficult times present. CEO and Chairman of the Executive Board
Detailed examination and discussion of the 2008 consolidated financial Expression of thanks
statements and the adidas AG annual financial statements At the conclusion of our five-year term in office, which expires at the end of the
KPMG audited the consolidated financial statements and the Group Management Annual General Meeting on May 7, 2009, we would like to express our appreciation
Report prepared in accordance with § 315 a German Commercial Code (Handels- of the tremendous personal dedication, the performance and the ongoing commit-
gesetzbuch – HGB) in compliance with IFRS and issued an unqualified opinion ment of the Executive Board, the managements of Group companies, the Works
thereon. The auditor also approved without qualification the 2008 annual financial Council and all adidas Group employees.
statements and the Management Report of adidas AG prepared in accordance with
HGB requirements. For the Supervisory Board
The financial statements, the proposal put forward by the Executive Board regarding
the appropriation of retained earnings and the auditor’s reports were submitted to
the Audit Committee and the Supervisory Board in a timely manner. They were
Dr. Hans Friderichs
examined first by the Audit Committee on February 27, 2009. At our meeting on
Chairman
March 3, 2009, the adidas AG annual financial statements were then examined
by the Supervisory Board as a whole and discussed in the presence of the auditor.
The auditor reported the material results of the financial statements audit with March 2009
focus on the 2008 priority topics as agreed with the Audit Committee. These
Dr. Hans Friderichs Fritz Kammerer 1) Igor Landau Sabine Bauer 1) Dr. iur. Manfred Gentz Dr. Stefan Jentzsch
Chairman Deputy Chairman Deputy Chairman Senior Manager Quality Analysis & Chairman of the Administrative Member of the Executive Board,
Former Federal Minister, Mainz, Chairman of the Central Works Former Chief Executive Officer Reporting, Global Operations, Board, Zurich Financial Services Dresdner Bank AG, Frankfurt
Germany Council, adidas AG of Aventis S. A., Paris, France adidas AG S. A., Zurich, Switzerland am Main, Germany3)
Chairman of the Supervisory Member of the Supervisory Chairman2) of the Supervisory Member of the Supervisory
Board, allit AG Kunststoff- Board, Allianz SE, Munich, Board, Deutsche Börse AG, Board, Premiere AG,
technik, Bad Kreuznach, Germany Frankfurt am Main, Germany Unterföhring, Germany
Germany Member of the Board of Member of the Supervisory
Directors, Sanofi-Aventis S. A., Board, DWS Investment GmbH,
Paris, France Frankfurt am Main, Germany
Member of the Board of Chairman of the Administra-
Directors, HSBC France S. A., tive Board, Zurich Financial
Paris, France Services S. A., Zurich, Switzer-
land
Roland Nosko 1) Hans Ruprecht 1) Willi Schwerdtle Heidi Thaler-Veh 1) Christian Tourres Klaus Weiß 1)
Trade Union Official, IG BCE Trade Sales Director Customer Service, General Manager, Procter & Member of the Central Works Former Member of the Executive Trade Union Official, IG BCE Trade
Union, Headquarter Nuremberg, Area Central West, adidas AG Gamble GmbH, Schwalbach Council, adidas AG Board of adidas AG Union, Headquarter Hanover,
Nuremberg, Germany am Taunus, Germany Member of the Board of Hanover, Germany
Member of the Supervisory Directors, Beleta Worldwide Member of the Supervisory
Board, CeramTec AG, Ltd., Guernsey, Channel Board, Wohnungsbaugesell-
Plochingen, Germany Islands schaft mbH Glückauf, Lünen,
Germany
1) Employee representative.
2) As of December 9, 2008; formerly Member of the Supervisory Board.
3) Until January 12, 2009, thereafter General Manager SB Asset Management GmbH, Kronberg, Germany.
governance provides for responsible, value-oriented performance and in terms of management. Fundamental business decisions require approval by the Supervisory
Board. In very urgent cases, the Supervisory Board can also pass a resolution by way of written
supervisory functions of the company. It is an important condition in circular vote. In addition, it appoints the members of the Executive Board.
order to maintain and strengthen the confidence placed in adidas AG by
our shareholders, financial markets, business partners, employees as The term of office of the current Supervisory Board expires with the end of the Annual General
Meeting on May 7, 2009, which will resolve upon the ratification of the actions of the Super-
well as the public. Key parameters of our corporate governance activities visory Board for the financial year 2008. Pursuant to MitbestG regulations, the election of
in 2008 were the further development of the good relationship with our the employee representatives will be held already in March 2009, whereas the shareholder
shareholders, efficient cooperation between the Executive Board and representatives will be individually elected at the Annual General Meeting in 2009.
the Supervisory Board as well as the responsible handling of risks and Increased efficiency ensured by Supervisory Board committees
opportunities and statutory and Group-internal regulations. We consider In order to perform its tasks in a most efficient manner, our Supervisory Board has formed five
corporate governance as a continuing process and will also continue to permanent expert committees see Rules of Procedure for the Supervisory Board www. adidas-
Group.com . The chairmen of these committees report regularly to the entire Supervisory Board.
follow future developments attentively.
— The Steering Committee, which consists of the Supervisory Board Chairman and his two
deputies, discusses major issues, prepares resolutions and is authorised in particularly urgent
Dual board system cases to pass resolutions on behalf of the Supervisory Board.
In accordance with statutory provisions, adidas AG has a dual board system, which assigns
management functions to the Executive Board and supervisory functions to the Super- — The co-determined General Committee, with four members, is responsible in particular
visory Board. These two boards are strictly separated in terms of membership as well as for the preparation of Supervisory Board resolutions regarding the appointment of Executive
competencies. Board members. Since November 2008, the Supervisory Board as a whole has been responsible
for resolving upon the Executive Board compensation system including all integral contractual
Management by the Executive Board elements, upon proposal by the General Committee, as well as for its regular review.
Our Executive Board consists of four members see Executive Board, p. 018 . It is responsible for
managing the company, developing the Group’s strategic orientation, agreeing this with the — The co-determined Audit Committee, which also comprises four members, deals primarily
Supervisory Board and ensuring its implementation. In doing so, it is bound to the company’s with accounting, risk management and compliance issues. It discusses the efficiency of the
interests and obliged to achieve a sustainable increase in company value. Its Rules of Procedure internal control system as well as the risk management system and is regularly informed on
regulate the specified scope of work of the Board, especially the responsibility of the Executive the work undertaken by Internal Audit. In addition, it assesses and supervises the auditor’s
Board members for particular business units, the matters reserved to the Executive Board as independence and determines audit priorities. The Audit Committee examines the consolidated
a whole and the modalities for resolutions. The Rules of Procedure for the Executive Board can financial statements and the adidas AG financial statements including the Management Reports.
be found on our corporate website at www. adidas-Group.com . It also prepares the respective Supervisory Board resolutions as well as the agreement with the
auditor. Furthermore, it deals with the quarterly and half-year financial reports. The exact tasks
of the Audit Committee are regulated by the Rules of Procedure, which were resolved upon by
the entire Supervisory Board in the year under review.
— Section 4.2.3 of the Code recommends that a severance payment cap for the premature
termination of the contract without serious cause be agreed when concluding employment
contracts with the Executive Board. The contracts that are currently to be newly concluded do
not provide for a formal severance payment cap due to the three-year term of the contract. We
believe that the contract term agreed already offers sufficient protection from inappropriate
severance payments.
1) This Compensation Report is an integral component of the audited Group Management Report and Notes and
is also part of the Corporate Governance Report.
2) Herbert Hainer and Erich Stamminger were both first appointed on April 1, 1997. Robin J. Stalker was first appointed on
January 1, 2001. For Glenn Bennett, instead of his first appointment date (April 1, 1997), January 1, 2000, is used for the
calculation of his pension entitlements. His base amount totals 20% of the pension entitlement.
A post-contractual competition prohibition period of six months has been agreed upon with the
Herbert Hainer (CEO and Chairman) 173 215
Executive Board member Glenn Bennett according to which adidas AG is obliged to pay compen-
Glenn Bennett 52 68
sation of 100% of the fixed annual salary.
Robin J. Stalker 126 161
Erich Stamminger 77 96
No loans granted to Executive Board members
Total 428 540
As in the years before, the members of the Executive Board did not receive any loans or advance
1) This also includes service costs which have arisen with regard to the provisions for pension
payments of future compensation components from adidas AG in 2008. obligations in the Consolidated Income Statement according to IFRS.
Miscellaneous
Our Executive Board members do not receive any additional compensation for mandates held
within the adidas Group.
In the event of claims raised against members of the Executive Board for indemnification of
losses incurred in connection with their managerial acts and omissions, the adidas Group’s
directors’ and officers’ group liability insurance covers the personal liability of the Executive
Board members but does not provide for a deductible see Corporate Governance Report, p. 026 .
3) For Robin J. Stalker the severance payment amounts to 50% of the fixed annual salary.
Miscellaneous
In the event of claims raised against members of the Supervisory Board for indemnification of
losses incurred in connection with their acts and omissions, the adidas Group’s directors’ and
officers’ group liability insurance covers the personal liability of the Supervisory Board members
but does not provide for a deductible.
01 04 05
02
03
First quarter
14.01. Picture 01 adidas and AC Milan announce the extension of their sponsorship deal until the end 21.02. Celebrating fun, ambitious, real women from around the world, Reebok launches the
of 2017. With the new agreement, adidas and AC Milan continue their strong partnership that Freestyle World Tour Collection. 04.03. Picture 04 TaylorMade-adidas Golf introduces the Tour Burner ®
started in 1998. 27.01. adidas sponsored athlete Novak Djokovic wins the Australian Open. driver. 06.03. Picture 05 adidas and Samsung launch miCoach, a revolutionary training system which
30.01. Picture 02 adidas and Diesel present their landmark product collaboration “adidas Originals collects athletes’ personal data and turns it into individual training plans. 18.03. Reebok and Dick’s
Denim by Diesel” marking the kick-off of their multi-year collaboration. 03.02. Picture 03 Reebok Sporting Goods announce a new apparel partnership via shop-in-shops throughout all Dick’s stores
sponsored New York Giants quarterback Eli Manning wins the Super Bowl Most Valuable Player in the USA. 25.03. Reebok launches its global marketing campaign “Your Move”, which aims to
trophy, just one year after his brother Peyton Manning. 06.02. adidas opens its first Y-3 flagship evolve Reebok’s positioning as the brand that celebrates individuality. 30.03. adidas has three of the
store in New York. 11.02. adidas and numerous international football stars unveil the F50 TUNIT ™ top four No. 1 seeded teams in the Final Four of the NCAA March Madness, including the winning
in Barcelona, Spain. This unique boot is the third generation of the successful F50 concept. team of the University of Kansas Jayhawks.
15.02. adidas sponsors the 2008 NBA All-Star Weekend in New Orleans.
07
06
09
Second quarter
02.04. adidas and the Ajax Amsterdam football club announce the extension of their sponsorship 28.05. adidas launches mi Originals, a customisation tool that offers consumers the chance to
deal until 2019. 18.04. adidas opens a Performance Centre and an Originals Store in Roppongi Hills, design their own individual lifestyle products. 07.06. The European Football Championship kicks off
Tokyo. TaylorMade-adidas Golf also opens a new store in the same building complex on the same in Basel, Switzerland. With Germany, France, Spain, Romania and Greece, adidas sponsors a total
day. 19.04. Picture 06 TaylorMade-adidas Golf presents its new Tour Burner ® campaign featuring the of five teams at UEFA EURO 2008 ™. 07.06. adidas sponsored athlete Ana Ivanovic wins the French
most important characteristics of its top metalwood. 22.04. adidas launches the football campaign Open. 10.06. Nearly 40 analysts and investors join the Group’s CFO Robin J. Stalker and Investor
“Dream Big”, in which the world’s biggest football stars meet the world’s smallest football teams. Relations team for an Investor Field Trip to China. Store and factory visits as well as extensive
25.04. Reebok launches its new website www.reebok.com. 17.05. Reebok sponsors the 25th “Avon presentations outline the Group’s strategy in Asia. 17.06. Picture 08 The Boston Celtics with adidas
Running” women’s run in Berlin with over 13,000 participants. 20.05. Picture 07 Reebok’s running superstar Kevin Garnett win the NBA Finals. 29.06. Picture 09 With Spain and Germany, adidas has
shoe “Premier SmoothFit ™ Cushion” is awarded the Plus X seal for innovation by the Plus X Award, two teams competing head-to-head for the European Championship title. Spain wins this three-
Europe’s biggest technology contest. 28.05. Reebok announces that three future NFL players, striped Final.
Joe Flacco, Kenny Phillips and Dan Connor, have signed multi-year endorsement agreements.
11
14 13
12 15
Third quarter
01.07. TaylorMade-adidas Golf equipment once again contributes prominently to victories at major 17.08. adidas swimmer Britta Steffen wins her second Gold Medal and sets another Olympic record.
golf tournaments. The winners of the Buick Open, Commerce Bank Championship and the 29.08. Reebok Hockey announces its partnership with the National Hockey League (NHL) for the
US Women’s Open all rely on TaylorMade-adidas Golf. 01.07. Picture 10 Reebok and driving ace 2008 NHL Premiere Series in Europe and unveils its 2009 global hockey product line. 03.09. The
Lewis Hamilton announce a multi-year partnership and at the same time unveil Reebok’s new adidas Group annual report “United by Sport” is awarded “Best Annual Report 2008” by “manager
SmoothFit™ training and apparel range. 05.07. Picture 11 The world’s biggest adidas store opens in magazin”. 04.09. The new homepage www.adidas.com highlights different campaigns and products
Beijing, China, taking the retail experience to a new level. 06.08. Picture 12 TaylorMade launches and offers an individualisable appearance for every country. 08.09. adidas and the Russian Football
www.myTPball.com, a programme that gives golfers the opportunity to design and order their own Union (RFU) announce a long-term partnership under which adidas supplies all RFU national teams.
golf balls. 08.08. Picture 13 The Beijing 2008 Olympic Games begin. As the Official Sportswear Partner 20.09. Picture 14 adidas Originals, Y-3 and adidas by Stella McCartney present their spring / summer
adidas celebrates its Olympic heritage and underlines its leading position in the fastest-growing ’09 collections during the Fashion Week in Milan, New York and London, respectively. 28.09. Picture 15
sportswear market in the world. In total, more than 3,000 athletes compete in adidas products and adidas sponsors the 35th Berlin Marathon where Haile Gebrselassie again breaks his own world
adidas provides products for 27 out of the 28 Olympic sports. record.
17 19 20
18 21
Fourth quarter
13.10. TaylorMade-adidas Golf enters into a definitive agreement to acquire all of the outstanding 19.11. Picture 19 Reebok launches its first ever pop-up store “Reebok Flash” in New York. Around
shares of Ashworth, Inc. and successfully completes the tender offer on November 18, 2008. 3,000 feet of gallery space create an incredible retail installation featuring selected Reebok products.
22.10. Picture 16 adidas launches its global basketball campaign “NBA Tested. Brotherhood Ready”. 24.11. adidas and the International Association of Athletics Federations (IAAF) formally announce an
This campaign features NBA All-Stars such as Gilbert Arenas, Dwight Howard, Tracy McGrady, 11-year partnership granting adidas the worldwide sponsorship rights for all IAAF World Athletics
Tim Duncan and Kevin Garnett. 31.10. Picture 17 With new products, initiatives and the support of Series events until 2019. 25.11. Picture 20 Celebrating the 60th anniversary of the iconic adidas brand,
extreme climbers Alexander and Thomas Huber, adidas kicks off the new outdoor season. adidas unveils “60 Years of Soles and Stripes”, its largest global brand campaign ever for adidas
03.11. Reebok unveils a giant portrait of Formula One Champion Lewis Hamilton by the iconic Originals. 28.11. adidas and the New Zealand Rugby Union (NZRU) announce the extension of their
London landmark of Tower Bridge to celebrate the sporting star‘s fantastic year. 10.11. Picture 18 long-term sponsorship contract until 2019. 08.12. adidas and United Kingdom Athletics (UKA)
TaylorMade-adidas Golf Tour Staff professional Sergio Garcia wins the HSBC Champions event in announce the extension of their partnership for the next five years. 16.12. Reebok announces a new
Shanghai and moves up to number two in the Official World Golf Ranking. 12.11. adidas Running is long-term partnership with the Russian football club CSKA Moscow. 29.12. Picture 21 adidas sponsored
internationally recognised by the world’s leading running magazine Runner’s World, winning two David Beckham joins AC Milan for his loan spell with the Italian club.
awards at their year-end summit in New York.
capitalisation (2007: 21) and 25 on turnover (2007: 22) at year- annual list of The Global 100 Most Sustainable Corporations in
end 2008. the World is unveiled each year at the World Economic Forum
in Davos.
55
51.63
Strong sustainability track record reflected in
index memberships adidas AG historically outperforms benchmark indices
46.94
46.48
In recognition of our social and environmental efforts, The adidas Group is committed to continuously enhancing
44.50
43.90
43.35
adidas AG is part of several sustainability indices. For the shareholder value. The long-term development of our share
42.94
45
41.16
ninth consecutive time, adidas has been included in the price reflects investor confidence and the growth potential of
40.30
38.07
Dow Jones Sustainability Indexes (DJSI). The index, which our Group. Since our IPO in November 1995, our share has
41.14
40.05
40.01
analyses and tracks the social, environmental and financial gained 212%. This represents a clear outperformance of both
39.39
38.23
38.04
37.88
performance of more than 300 companies worldwide, rated the DAX-30 and the MSCI Index, which increased 118% and 35
36.22
31.23
34.36
adidas for the sixth time in a row as industry leader in sus- 55% respectively during the period.
27.94
tainability issues and corporate responsibility in the category
“Clothing, Accessories & Footwear”. In addition, adidas ADR performs in line with common stock 25
was named “Super Sector Leader” 2008 /2009 in the sector Since its launch on December 30, 2004, our Level 1 American
“Personal & Household Goods” and thus ranks among the Depositary Receipt (ADR) facility has enjoyed great popularity
23.01
22.51
21.22
most sustainable companies worldwide. among American investors. Roughly in line with the develop-
ment of our common stock, the Level 1 ADR closed the year
at US $ 19.35, representing a decrease of 48% versus the 30-day moving average High and low share prices
prior year (2007: US $ 37.20). The number of Level 1 ADRs
1) Based on intra-day prices.
outstanding decreased to 8.9 million at year-end 2008 (2007: Source: Bloomberg.
11.1 million). However, the average daily trading volume
increased 32% compared to the prior year. Since November
2007, the adidas AG ADR is quoted on the international OTCQX.
This electronic trading forum includes leading international
companies with substantial operating businesses and credible
disclosure policies.
Our Group
Structure and Strategy 044
Corporate Mission Statement 044
Group Brands and Divisions 045
Group Strategy 046
adidas Strategy 048
Reebok Strategy 052
TaylorMade-adidas Golf Strategy 056
Internal Group Management System 058
Major Locations and Promotion Partnerships 062
044 Group Management Report – Our Group Structure and Strategy — Corporate Mission Statement — Group Brands and Divisions
Group Brands and Divisions
Sport Performance (80% of adidas sales) Reebok (80% of Reebok sales) TaylorMade (70% of TaylorMade-adidas Golf sales)
The guiding principle of the adidas Sport Performance Division Inspired by its roots in sport and women’s fitness, Reebok is TaylorMade is a leader in the industry and the number one
is to equip all athletes to achieve their “impossible”. adidas Sport a global brand that is committed to developing innovative products metalwood supplier. It focuses on consumers who seek the most
Performance brings its passion for great products to athletes which will allow Reebok to own Women’s Fitness, challenge the innovative, performance-enhancing golf equipment available,
in all sports and mainly focuses on four key categories globally: Men’s Sport category and revive its Classics heritage. including technologically superior drivers, fairway woods, irons,
football, running, training and basketball. putters and balls.
Sport Style (20% of adidas sales) Reebok-CCM Hockey (9% of Reebok sales) adidas Golf (30% of TaylorMade-adidas Golf sales)
The Sport Style Division is the home of Originals, defined as authentic Reebok-CCM Hockey is one of the world’s largest designers, adidas Golf targets active, serious, athletic-minded golfers who
sportswear, the Fashion Group, which is the future of sportswear, and manufacturers and marketers of hockey equipment and apparel understand that the right technologies can dramatically improve
Style Essentials, the fresh sport-inspired label made accessible for with two of the world’s most recognised hockey brand names: the performance of golf footwear and apparel.
style-adopting youth. Together they offer consumers products from Reebok Hockey and CCM Hockey.
street fashion to high fashion, all uniquely inspired and linked to sport.
046 Group Management Report – Our Group Structure and Strategy — Group Strategy
Leading through innovation and design Customising distribution Creating shareholder value
We are determined to address every consumer in a specific and Our Group will drive future success by engaging consumers Sustainable revenue and operating profit growth are critical
unique way – with product and communication initiatives that with unique interactive product approaches and rewarding to our success. Creating value for our shareholders through
generate trade and consumer interest. As a result, we believe point-of-sale experiences. Our brands must be competitive in significant free cash flow generation drives our overall
that technological innovation and cutting-edge design are this environment where consumers make their final purchase decision-making process see Internal Group Management
essential to sustainable leadership in our industry. decisions based on availability, convenience and breadth of System, p. 058 . For each of our brands, we pursue the most
product offering. As a result, we are continuously refining our value-enhancing avenues for growth, with particular empha-
Innovation plays a significant role in differentiating our product distribution proposition, concentrating on two areas: expanding sis on continuously improving profitability. In addition, rigor-
offering in the minds of consumers. By leveraging the extensive controlled space and improving retail relationships. ously managing working capital and optimising financial lever-
R&D expertise within our Group, we continuously challenge Controlled space includes: age remain key priorities for us. As always, we are committed
the boundaries of functionality and performance. It is our to increasing returns to shareholders with above-industry-
objective to launch at least one major new technology or tech- — Our own-retail business including e-commerce average share price performance and dividends.
nological evolution per year see Research and Development, — Mono-branded stores run by retail partners
p. 074 . — Shop-in-shops that we establish with our key accounts
— Joint ventures with retail partners
Through design partnerships and collaborations with Stella — Co-branded stores with sports organisations or other
McCartney, Yohji Yamamoto, Porsche Design and Jean-Michel brands
Basquiat we are widening our design reach and imbuing our
products with the excitement consumers demand. By continu- These formats provide us with a high level of brand control, as
ally expanding our capabilities in R&D and design, we are able we either manage the stores ourselves (i.e. own retail) or we
to introduce new products at premium price points, thus con- work closely with our partners (mono-branded stores, shop-
tributing to Group margin improvement. in-shops, joint ventures, co-branded stores) to ensure the
appropriate product offering and presentation at the point-
of-sale. Brand control helps us drive sales and profitability
increases and expand our market position. We intend to gener-
ate at least 35% of our Group’s revenues through controlled
space in the coming years.
048 Group Management Report – Our Group Structure and Strategy — adidas Strategy
Increasing cooperation with retail partners Own retail and e-commerce Sport Performance: divisional overview
Success in both Sport Performance and Sport Style requires Own-retail expansion is an important strategic driver for adidas No other brand has a more distinguished history or stronger
an effective distribution strategy and a solid network of reli- brand growth. While serving as a mechanism to expand distri- connection with sport than adidas; not only where the best
able retail partners. The right presentation and availability bution where retail infrastructure is under-developed (such as meet the very best, like at the Beijing 2008 Olympic Games,
of consumer-relevant products as well as excellent customer in many emerging markets), own-retail activities also give the but everywhere around the globe where sports are played,
service at the point-of-sale are critical in this respect. adidas brand valuable insight into consumer trends and product posi- watched, enjoyed and celebrated.
currently generates around 82% of its business with its retail tioning in all markets where adidas operates its own stores.
partners. Two of the highest strategic priorities to drive future In addition, improving own-retail presence and processes will Everything at adidas reflects the spirit of its founder Adi Dassler.
business growth with the brand’s partners are: – in the long run – also be beneficial for enhancing other con- That means adidas intends to inspire, support and equip all
trolled space initiatives as best practices in presenting brand athletes in the best possible way to help them achieve their
— Consumer-oriented range segmentation today forms the image can be incorporated in these concepts. optimal performance. Therefore, adidas Sport Performance
foundation for closely targeted brand activation plans. In this, remains the brand’s primary focus both in terms of product and
adidas is working very closely with its main retail partners to 2008 marked a milestone in adidas own-retail history with the brand initiatives. The division will continue to generate at least
fully align consumer propositions and to develop unique selling opening of the first adidas Brand Center in Beijing a month 70% of adidas brand revenues going forward. Although the
propositions in line with the partner’s target audience. In 2008, before the Beijing 2008 Olympic Games. As the largest adidas adidas Sport Performance division offers products in almost
an example of this was the collaboration with the Intersport own-retail store in the world with 3,170 m2, the Brand Center every sports category, the key priorities are:
Group around the UEFA EURO 2008™. adidas also seeks to offers products from all adidas categories under one roof.
broaden its distribution network with the addition of new Other retail initiatives carried out in 2008 included refining the — Football
partners, in particular sports specialist or fashion specialist women’s and kids’ areas and a revised, more customer-friendly — Running
customers, as the product offering is expanding continuously. footwear department in adidas Sport Performance stores. The — Training
Sport Style division released new concepts for the Originals — Basketball
— Retail space management (e.g. shop-in-shops) is becom- stores called Atelier and Studio. Furthermore, a refreshed
ing the most dynamic business model for adidas and is a key Y-3 store concept has been launched and is already exceed- In all these areas, adidas strives to be the leading global brand
part of the brand’s controlled space expansion. In this, the ing expectations. To fully exploit the potential of the new Style in terms of sales. Additionally, adidas plans to intensify its
brand is cooperating with retailers along the entire supply Essentials range, adidas has opened numerous dedicated activities in the outdoor market see adidas Products and
chain all the way through to the point-of-sale. Replenishment stores via the adidas franchise partners in China. Campaigns, p. 128 and to further extend its strong global market
models secure high levels of product availability throughout position in the tennis category going forward.
the season, allowing for quick adaptation to demand patterns. In 2008, adidas also successfully launched its e-commerce
In addition, by increasing control over point-of-sale presenta- platform in four major European markets (Germany, the adidas aims to consistently present the brand attitude
tion, regular brand statements and product updates give adidas Netherlands, France and the UK). In 2009, the United States “Impossible is Nothing” in targeted and relevant consumer
higher flexibility to generate consumer awareness. and selected European countries will welcome mi Performance communication. The “Impossible is Nothing” brand campaign
online as part of the mi adidas® customisation solution. encourages consumers to achieve their own personal
To support these initiatives, during 2008 the brand extended “impossible” goals – no matter what they might be – and
the reach of its innovative web portal services and added underlines that adidas will help them in their pursuit of these
attractive new features to its CRM platform in many countries goals.
around the world. Going forward, adidas is ready to invest into
new forms of cooperation to remain at the forefront of cus-
tomer collaboration and partnership.
050 Group Management Report – Our Group Structure and Strategy — adidas Strategy
Sport Style: divisional overview To address the needs of its diverse consumer groups and The opportunity or “new-ness”, however, will come through
The market for streetwear and lifestyle fashion represents a maximise business opportunities, adidas Originals takes a leveraging what has been created through Y-3 and Originals to
unique opportunity for sporting goods companies as it is more two-tier strategy to brand and product marketing: Statement expand the brand’s fashion lifestyle offer to more and different
fragmented and larger in size than the market for products and Core. Statement product concepts aim to generate buzz consumers. In 2009, adidas will bring the Sport Style division to
used in sports activity. In addition, profitability in the sports and to add freshness to the brand. Core product concepts aim another level with the launch of the adidas SLVR Label, a pure
lifestyle market is typically higher as a result of lower R&D to generate sales volumes by presenting a constant collection fashion brand for the modern cosmopolitan consumer, offering
expenses. that is uniquely adidas. In essence, Core is the bread and butter “simply perfect” garments, shoes and accessories. The adidas
of adidas Originals and includes all collections that consumers SLVR Label celebrated its premiere at the New York Fashion
adidas was the first brand to credibly leverage its sports assets have come to depend on. Week in February 2009, which will be followed by the opening
in the lifestyle arena and as a result is regarded as a legiti- of its first store worldwide.
mate sports lifestyle brand. What started as a niche business The brand marketing focus is with the core consumer, so in
has developed into a significant contributor to the brand’s 2008 the marketing efforts behind adidas Originals were also Sport Style – extending brand reach through
top line with potential to represent up to 30% in the medium increased significantly with the first global campaign including adidas Style Essentials
to long term. To best tap the potential of the sports lifestyle television and cinema, the “Originals House Party”, featuring In 2008, adidas took a big step forward with the expansion of
market, adidas created a dedicated Sport Style division prima- entertainment icons like Missy Elliott and Katy Perry, or sports the Sport Style division through the introduction of adidas
rily focused on its Originals and Fashion businesses (e.g. Y-3, icons from Ilie Nastase to David Beckham celebrating “60 Years Style Essentials. adidas Style Essentials is a complete offering
Porsche Design). of Soles and Stripes”. of footwear, apparel and accessories which takes its design
inspiration from the entire brand, both Sport Performance and
In 2009, adidas Originals will complete the full transition Sport Style, but offers it up in different distribution channels
Sport Style – adidas Originals: from niche to from niche marketing to mainstream with the largest global and at more accessible price points. It capitalises on existing
fashion mainstream Originals brand campaign ever, coinciding with the 60th anni- trends and brings them to market more rapidly than traditional
The cornerstone of the Sport Style division is adidas Originals: versary of the brand. sporting goods timelines. adidas Style Essentials is primarily
the original lifestyle brand, born in sport heritage but living distributed through mono-branded stores in Asia and through
in contemporary lifestyles. adidas Originals is uniquely posi- Sport Style – adidas is fashion: Y-3 and the key account partners in North America and Europe.
tioned amongst its competitors in that it unites and touches adidas SLVR Label
diverse pockets of popular culture around the world. Its biggest Since 2002, adidas has rapidly expanded Y-3, a collaboration
strength and point of difference is the ability of the Trefoil to with one of the most innovative and highly regarded global
be a relevant part of people’s lives – in whatever lifestyle they designers: Yohji Yamamoto. Y-3 successfully combines the
have: skater, rocker, artist, musician, sneakerhead, sports worlds of fashion and sports and makes adidas a true pioneer
fan, etc. in the field of sport-inspired high-end, premium fashion.
adidas is the only sports brand with a greatly anticipated and
With a holistic offering in products and communications, adidas well-regarded show at each New York Fashion Week.
Originals speaks to and engages the youth audience in authen-
tic, creative and new ways with the “Celebrate Originality” Controlled space will be the main strategic priority for Y-3
philosophy. in the upcoming years. By the end of 2010, adidas targets to
have 40 Y-3 stores (including franchise and own-retail stores)
located in the world’s top shopping destinations. Furthermore,
a Y-3 online store has been launched in the USA in 2008, with
the extension of e-commerce to other markets following in the
future.
2008, the Reebok brand has further refined its designing and developing products with materials, styles YOUR MOVE
and technologies that enhance fit and comfort for consumers.
strategy considering the brand’s heritage and With technologies such as SmoothFit™, KineticFit and The Territory
values, consumer insights and positioning Pump™, Reebok has already provided consumers with innova- Having FUN
staying in
within the adidas Group portfolio. Inspired by its tive fit elements in its apparel and footwear. In 2008, Reebok shape
expanded its SmoothFit™ technology across all sports
roots in sport and women’s fitness, Reebok categories, providing an amazing fit through the elimina-
Women Men
— Fitness — Training
developed a clear roadmap for its key busi- tion of interior seams within the shoe. In 2009, the brand will — Running — Running
— Walking — Sports
nesses going forward: Own Women’s Fitness, take this approach a step further with the launch of a new
innovative footwear technology to meet the versatile needs of Classics
Challenge Men’s Sport and Revive Classics. today’s athletes, called SelectRide™. Through its adjustable — Women — Men
Central to Reebok’s brand heritage is the air-inflated underfoot cushioning system, the SelectRide™
courage to challenge convention. Unlike many technology creates two shoes in one – a running shoe and a
Own Revive Challenge
training shoe. Initiatives like these support Reebok’s fit and
other brands, Reebok is committed to make innovation strategy and will be the focus of Reebok’s innovation
fitness fun again – challenging men and women going forward.
to fulfil their potential in sport and in life by
Becoming the “brand that fits me” also means addressing
providing them with the opportunity, the prod- consumers in a personal, engaging way so they can better
ucts and the inspiration to have fun staying in identify with the brand. Reebok’s global brand campaign,
shape. “Your Move”, is an invitation for people to express themselves,
in sport and life, in their own individual way. This campaign
was launched in 2008, and will continue through 2009 as a
connecting theme across all categories.
052 Group Management Report – Our Group Structure and Strategy — Reebok Strategy
However, the concept of fit is not only a product and market- In the gym: Reebok and Cirque du Soleil entered into a revo- Out of the gym: Women are busy and don’t always find the time
ing philosophy. Instead, it should guide all facets of the brand’s lutionary partnership, inspiring a new workout experience to fit in their daily workout. Based on this relevant consumer
business. That means meeting the needs of consumers, pro- and product collection that is forward-looking, exploratory need, in 2009, Reebok will launch the EasyTone™ footwear
motional partners, retailers and employees. With a “perfect fit” and feminine. In spring 2009, Reebok and Cirque du Soleil collection that allows consumers to “take the gym with them”
distribution strategy, Reebok intends to offer the right products will launch JUKARI Fit to Fly™, a genuine workout experi- see Reebok Products and Campaigns, p. 138 . The EasyTone™
to the right accounts at the right margins. Moreover, Reebok is ence, inspired by the imaginative, theatrical and physically technology involves two balance pods under the heel and fore-
committed to building a work environment that matches the demanding artistry of Cirque du Soleil see Reebok Products foot of the shoes that create natural instability with every step,
need of its employees and to hiring people who fit the brand’s and Campaigns, p. 138 . It is a full body cardio, core and strength forcing the muscles to adapt and develop tone.
values. workout that brings the Reebok philosophy of having fun in
fitness vividly to life. For a cause: Reebok is committed to helping fight breast can-
Own women’s fitness cer. The company is the official global footwear and apparel
Reebok is on a mission to make fitness fun again for women. Unique to JUKARI Fit to Fly™ is proprietary new equipment, the sponsor of the Avon Walk Around the World for Breast Cancer.
The brand’s commitment to women’s fitness is long-standing. FlySet™, created by Reebok and enabling a diverse repertoire The brand has developed a special Pink Ribbon collection of
It introduced Step Reebok in 1989 and virtually invented the of exercises and movement progressions. With dramatic music, sports and lifestyle products for the walk. All products carry
aerobics movement of the 1980s. This heritage and credibility fluid choreography and unique signature moves, JUKARI Fit to the symbolic Pink Ribbon and Reebok makes a significant
has connected women to Reebok like no other brand, and will Fly™ is unlike anything currently available in gyms. Along- monetary contribution each year to supporting research into a
serve as the cornerstone for the brand’s business expansion. side JUKARI Fit to Fly™ is a fully integrated women’s fitness cure against this deadly disease. Reebok also plans to activate
range, the Reebok Cirque du Soleil collection, which combines its newly formed Reebok Global Instructors locally in 2009 in
Reebok began to define its focus on women’s fitness in autumn the performance demands of the workout experience with the support of its Pink Ribbon Avon partnership.
2008, launching a women’s specific “Your Move” campaign. creativity and artistry of Cirque du Soleil.
In 2009, the brand will accelerate its women’s programmes,
introducing new partnerships and products and once again Personifying its philosophy of having fun staying in shape,
reaffirming its support of women’s health and fitness – Reebok is partnering with some of the world’s top women’s
whether in the gym, out of the gym or for a cause. fitness instructors renowned for their inspirational approach to
fitness. The Reebok Global Instructor Team are ambassadors
of the brand, JUKARI Fit to Fly™ teachers and inspirational
motivators for women worldwide. JUKARI Fit to Fly™ will be
available through a group of select worldwide gym partners
from early 2009.
054 Group Management Report – Our Group Structure and Strategy — Reebok Strategy
Growth opportunities through controlled Reebok-CCM Hockey: strengthening innovation leadership Rockport: expanding in the casual lifestyle market
space and e-commerce Reebok-CCM Hockey leverages significant brand exposure Rockport is a leading global lifestyle footwear brand. It com-
Reebok increasingly focuses on the roll-out of shop-in-shops through its exclusive licensee relationships with the National bines engineered comfort with contemporary design in a
with retail partners in mature markets, while expanding its Hockey League (NHL), the American Hockey League, the unique and meaningful way by using technologies derived from
own-store base as well as its mono-branded store network Canadian Hockey League (CHL), as well as several colleges the athletic footwear industry. In 2008, Rockport has sharpened
in emerging markets. In 2008 for example, Reebok formed (NCAA) and national teams. Reebok-CCM Hockey continues its strategy to focus on four key pillars:
a new men’s and women’s sports apparel partnership with to hold the number one position in global sales in the hockey
Dick’s Sporting Goods, introducing hundreds of new Reebok category through its Reebok Hockey and CCM Hockey brands. — Globalise brand, product and distribution
shop-in-shops throughout Dick’s stores in the USA. In addition, — Develop a meaningful women’s business
Reebok began rolling out shop-in-shops with key European Reebok-CCM Hockey aims to further strengthen its innova- — Enhance own retail capability
retail partners in order to represent the new women’s concepts tion leadership. Product development and design initiatives — Develop organisational structure to support growth
holistically. By the end of 2009, Reebok plans to have over 150 therefore focus on technologically advanced, performance-
of these in place in the European market. enhancing equipment see Research and Development, p. 074 . Leveraging the Group’s infrastructure (e.g. in emerging mar-
While both brands offer the complete range of hockey equip- kets) is a core element in Rockport’s growth strategy. By 2010,
Reebok is also leveraging the digital space to control distribu- ment and apparel, the CCM brand is focused on leveraging its more than 50% of Rockport sales are expected to be gener-
tion and build direct consumer relationships. In 2008, Reebok excellence in skates and Reebok Hockey is focused on hockey ated outside of North America. From a category perspective,
launched a new global website and e-commerce channels sticks and apparel. Rockport has major growth initiatives targeted at the metro-
in North America and five markets in Europe (UK, France, politan consumer. In the women’s area, Rockport will continue
Netherlands, Ireland, Belgium). The new global website allows The Reebok 2009 Hockey Pro product line will be backed by to invest in people to bring new competency in terms of product
Reebok to showcase the breadth and depth of the brand’s com- star athletes such as 2007 NHL MVP Sidney Crosby and top creation and design to its organisation. The brand strives to
plete product offering, significantly improving the consumer NHL Vancouver Canucks goalie Roberto Luongo. Reebok will connect with different consumer groups through a well-defined
experience and driving online sales for the brand. introduce for the first time the PUMP™ hockey skate, featur- product segmentation and disciplined distribution strategy.
ing Reebok’s proprietary PUMP™ technology. The company will Part of this strategy is the creation of a new mono-branded
Reebok will build on its controlled space momentum in 2009 also bring to market the lightest hockey stick ever, at a mere retail concept whose prototype is currently being tested in the
with the further roll-out of mono-branded retail stores and 405 grams. USA. Following a review of its performance, and provided it
shop-in-shops as well as extending its e-commerce platform proves successful, this will then be rolled out on a more signifi-
(e.g. in Germany and Austria). Current plans are to open over As a leading manufacturer and marketer of technologically cant scale later in 2009.
1,000 new mono-branded stores (including franchise and own- advanced hockey equipment, Reebok-CCM Hockey primarily
retail stores) in the next 24 months, including the introduction targets high price points. By further strengthening its innova- The Rockport brand predominately competes at high and
of a new Women’s Fitness retail format. tion leadership, Reebok-CCM Hockey intends to preserve its mid-price points. To increase competitiveness in these price
high average selling prices. segments, the brand is committed to continuously incorpo-
Increasing average selling prices rating advanced technologies into its products. To this effect,
To reinforce its position as a premium sports and lifestyle Rockport will continue to leverage on Group-wide resources
brand, Reebok’s goal is to significantly improve and increase its with the continued incorporation of industry-leading technolo-
product offering at high and mid-price points to drive growth gies such as adidas TORSION® and the first-time inclusion of
in average selling prices. This approach may slow the targeted adiPRENE® into its products in 2009 see Rockport Products
short-term top-line development by voluntarily foregoing and Campaigns, p. 145 .
commercial opportunities in the low-price segment. More
importantly, however, it enables Reebok to build a platform
for sustainable long-term sales and profitability growth and
preserves the brand’s image.
056 Group Management Report – Our Group Structure and Strategy — TaylorMade-adidas Golf Strategy
Building on adidas Golf’s strength in footwear and apparel Marketing excellence as a key success factor Further extending and segmenting distribution
adidas Golf’s steady commitment to developing great-looking, Well-coordinated and consumer-relevant marketing is para- TaylorMade-adidas Golf works with retail partners that possess
great-feeling and performance-enhancing products has mount to attaining sustainable market leadership. To achieve the skills to effectively showcase the performance advantages
made it the fastest-growing footwear and apparel brand in that, TaylorMade-adidas Golf has combined product marketing, of TaylorMade, adidas Golf and Ashworth products. Core chan-
golf during the last three years. The introduction of industry- brand communication and retail marketing into one fully- nels include green grass retailers, off-course golf specialty
leading high-performance golf shoes such as the TOUR360, integrated global marketing team. This team uses a variety retailers and sporting goods retail formats with golf-specific
the TOUR360 II and the POWERBAND has helped adidas Golf of strong marketing tools to achieve its objectives. Product departments. Focusing on strategic and key accounts (golf
extend its position as the top-selling footwear brand in Japan launches are followed by point-of-sale support, in-store com- specialty and sporting goods retailers) in the distribution mix
and advance its standing as a strong competitor in the global munication and customer flow management support (e.g. allows TaylorMade-adidas Golf to position its clubs, balls, foot-
golf footwear market. adidas Golf intends to expand its posi- assistance in reducing waiting times for consumers) to drive wear and apparel among the top-selling golf products in these
tion in golf footwear in the medium term by further leveraging product sell-through. Likewise, TaylorMade-adidas Golf’s lead- retail channels.
adidas’ strength in footwear technologies and by building on ership and presence on the world’s major professional golf
its successful TOUR360 and POWERBAND franchises. tours is imperative to increasing brand traction among con- TaylorMade-adidas Golf will continue to work closely with its
sumers. A multitude of prominent Tour professionals wear and strategic accounts in 2009 and plans to increase its efforts to
In apparel, adidas Golf positions itself as the most inno- play TaylorMade-adidas Golf products, including Kenny Perry, extend brand presence at smaller retailers and on-course golf
vative performance brand in the game by utilising adidas Retief Goosen, Sean O’Hair, Darren Clarke, Natalie Gulbis, shops, where great opportunities exist. To support growth and
CLIMACOOL®, CLIMACOOL® Motion, CLIMA Compression and Nick Faldo, Mike Weir, Andres Romero, Fred Funk and global at the same time avoid overexposure to certain accounts or
CLIMAPROOF® technologies in adidas Golf apparel products. golf icon Sergio Garcia, with the logos of the brands clearly an oversupply in the market, TaylorMade-adidas Golf pursues
adidas Golf was the first major brand to incorporate technolo- displayed on their bags, hats, apparel and footwear. Further, a selective distribution strategy based on a clear segmenta-
gies like these into golf apparel, making the brand the clear efficient product lifecycle management plays an important role tion of its product offering at retail. The company also utilises
leader in technological innovation. adidas Golf is committed to in helping TaylorMade-adidas Golf achieve optimal market- existing adidas infrastructure, particularly own-retail stores, to
growing its apparel business by continuing to incorporate lead- place results. In summary, marketing expertise and excellence distribute adidas Golf products and drive growth in emerging
ing adidas apparel technologies into golf products, a strategy are critical tools that TaylorMade-adidas Golf uses to drive markets.
that will help the brand achieve global market leadership in the sustainable growth.
category in the medium term. Also, the integration of adidas Pricing strategy reflects brand positioning
Golf and Ashworth has extended the segment’s distribution TaylorMade-adidas Golf’s pricing policy mirrors the positioning
capability from over 4,000 to 5,000 green grass retail accounts, of its three brands. As a result, TaylorMade’s pricing strategy is
creating further distribution potential for adidas Golf. to dominate the market at premium price points and compete
aggressively in the high-volume mid-price segment. adidas
Authenticity through Ashworth Golf supports its market reputation as the innovation leader
The acquisition of Ashworth presents TaylorMade-adidas Golf by selling its products primarily at premium price points.
with a unique opportunity to establish a lifestyle business. Ashworth positions products in the mid- and premium-price
Through the combination of adidas Golf and Ashworth, the categories, and focuses on distribution through golf special-
segment is now the leading manufacturer in the golf apparel ists. Market share expansion, particularly in golf equipment,
market. The acquisition allows adidas Golf to sharpen its is driven mainly by the ability to deliver best-in-class lines
focus and leadership in performance apparel, while under of products at multiple price points. In 2008, two examples
its new multi-brand approach Ashworth can be refocused to of TaylorMade-adidas Golf’s success with this strategy are
golf lifestyle. Its roots in golf and authenticity as a golf brand the Burner® (medium price) and r7® Limited (premium price)
provide a key differentiator from other golf lifestyle brands. drivers, and the POWERBAND (medium price) and TOUR360
From a product perspective, the brand will primarily focus Limited (high price) footwear.
on extending its leadership in functional cotton products that
deliver a modern look and will prioritise the men’s segment. In
line with TaylorMade-adidas Golf’s strategy, Ashworth will also
seek to build Tour visibility and credibility utilising partners
such as Tour professional Fred Couples. While maintaining two
distinct brands, to maximise the commercial opportunity of the
acquisition, all operating and go-to-market functions have
been fully integrated to take advantage of operational and fixed
cost synergies.
mance and to align future strategic and of the responsible managers’ total compensation is variable
investment decisions to best utilise commer- and linked to a combination of operating profit, operating
working capital development, Group earnings before taxes, or 1) Excluding acquisitions and finance leases.
cial and organisational opportunities. relative /absolute stock price performance.
058 Group Management Report – Our Group Structure and Strategy — Internal Group Management System
The primary drivers central to enhancing operating margin are: Key financial metrics Optimisation of non-operating components
Our Group also puts a high priority on the optimisation of non-
— Sales and gross margin development: Management focuses operating components such as financial expenses and taxes,
on identifying and exploiting opportunities that not only provide as these items strongly impact the Group’s cash outflows and
for future growth, but also have potential to increase gross Gross profit therefore the Group’s free cash flow. Financial expenses are
Gross margin = × 100
margin (defined as gross profit as a percentage of net sales). Net sales managed centrally by our Group Treasury department see
Major levers for sustaining and enhancing our Group’s sales Treasury, p. 093 . The Group’s current and future tax expenditures
and gross margin include optimising our product mix, increas- are optimised globally by our Group Taxes department.
ing the quality of distribution – with a particular focus on con- Operating profit
Operating margin = × 100
trolled space – as well as supply chain efficiency initiatives, and Net sales Tight operating working capital management
the minimisation of clearance activities. Due to a comparatively low level of fixed assets required in our
business, the efficiency of the Group’s balance sheet depends
Sum of operating working
— Operating expense control: We put high emphasis on tightly Average operating capital at quarter-end to a large degree on our operating working capital manage-
controlling operating expenses to leverage the Group’s sales working capital = ment. Our key metric is operating working capital as a percent-
4
growth through to the bottom line. This requires a particular age of net sales. Monitoring the development of this key metric
focus on ensuring flexibility in the Group’s cost base. Market- facilitates the measurement of our progress in improving the
ing working budget is our largest operating expense. It is one Average operating efficiency of our business cycle. We have significantly enhanced
Operating working capital working capital
of the most important mechanisms for driving top-line growth. in % of net sales = × 100 working capital management over recent years through
Therefore, we are committed to improving the utilisation of our Net sales continuous improvement of our Group’s inventories, accounts
marketing spend. This includes concentrating our communi- receivable and accounts payable.
cation efforts (including advertising, retail presentation and
Additions of property,
public relations) on key global brand initiatives and focusing Capital expenditure 1) = plant and equipment plus
We strive to manage our inventory levels to meet market
our promotion spend on well-selected partnerships with top intangible assets demand and ensure fast replenishment. Inventory ageing is
events, leagues, clubs and athletes. We also aim to increase controlled to reduce inventory obsolescence and to optimise
operational efficiency and reduce operating overhead expenses clearance activities. As a result, stock turn development is the
as a percentage of sales. In this respect we constantly review 1) Excluding acquisitions and finance leases. key performance indicator as it measures the number of times
our operational structure – streamlining business processes, average inventory is sold during a year, highlighting the effi-
eliminating redundancies and leveraging the scale of our ciency of capital locked up in products in relation to our Group’s
organisation. These measures may also be supplemented by business. To minimise capital tied up in accounts receivable,
short-term initiatives such as temporarily curtailing opera- we strive to continuously improve collection efforts in order to
tional investments, for example staff hiring. reduce the Days of Sales Outstanding (DSO) and improve the
ageing of accounts receivable. Likewise, we strive to continu-
We strive to maximise revenues and minimise costs by detailed ously optimise payment terms with our suppliers to best man-
target setting, and we constantly monitor deviations in rolling age our accounts payable.
forecasts on a monthly basis. If necessary, action plans are
implemented to optimise the development of the Group’s oper-
ating performance.
060 Group Management Report – Our Group Structure and Strategy — Internal Group Management System
Management appraisal of performance and targets Targets versus actual key metrics
We communicate our Group’s financial targets on an annual
basis. We also provide updates throughout the year as appro-
priate. In 2008, we achieved or exceeded all key financial
2007 2008 2008 2009
targets we had set for the Group except for net borrowings, Actual Initial Target Actual Outlook
which surpassed the prior year level. We outperformed macro-
economic and global industry growth see Economic and Group sales (currency-neutral) 7% high-single- 9% low- to mid-
Sector Development, p. 080, improved Group gross and operating digit increase single-digit
margins and increased earnings per share at a double-digit decline
rate. adidas segment sales (currency-neutral) 12% high-single- 14% low- to mid-
digit increase single-digit
decline
By segment, development at adidas and TaylorMade-adidas
Reebok segment sales (currency-neutral) 0% low- to mid- (2%) at least
Golf exceeded our initial sales expectations while the Reebok single-digit stable
segment performed below initial expectations. At Reebok, increase
sales increases in the emerging markets, particularly in Asia TaylorMade-adidas Golf segment sales (currency-neutral) 9% 1) mid-single- 7% low-single-
and in Eastern Europe, were more than offset by lower than digit increase digit increase
anticipated revenues in North America and the UK.
Group gross margin 47.4% 47.5 to 48% 48.7% decline
Our expectations for Group business performance in 2009 adidas segment gross margin 47.4% increase 48.6%
reflect the deterioration of the global economy towards the end Reebok segment gross margin 38.7% increase 37.0%
of 2008 and at the beginning of 2009. We expect the recession- TaylorMade-adidas Golf segment gross margin 44.7% increase 44.3%
ary environment in many major markets to have a significant
Group net other operating expenses and income (in % of sales) 39.2% increase 39.6% increase
negative impact on our Group’s financial performance in 2009,
adidas segment net other operating expenses and income (in % of sales) 35.6% increase 35.6%
resulting in declines in both Group sales and earnings per
Reebok segment net other operating expenses and income (in % of sales) 35.8% increase 38.7%
share. The degree of the decline in earnings per share will also
TaylorMade-adidas Golf segment net other operating expenses and income (in % of sales) 34.4% increase 32.1%
depend on the development of exchange rates. In 2010, assum-
ing an improving global economy, we are confident to increase Group operating margin 9.2% at least 9.5% 9.9% decline
sales and earnings per share compared to 2009. We believe adidas segment operating margin 12.9% increase 14.0%
our outlook is realistic within the scope of the current trading Reebok segment operating margin 4.7% increase (0.3%)
environment. Compared to prior years, however, it entails a TaylorMade-adidas Golf segment operating margin 8.1% increase 9.6%
higher degree of uncertainty. No material event between the
end of 2008 and the publication of this report has altered our Net income growth (attributable to shareholders) 14% at least 15% 16% decline
view see Subsequent Events and Outlook, p. 120. Operating working capital (in % of net sales) 25.2% further 24.5% further
reduction reduction
Capital expenditure (€ in million) 2) 289 300 – 400 380 300 – 400
Net debt (€ in million) 1,766 maintain 2,189 reduction
2007 level
or reduce
1) On a like-for-like basis, excluding prior year sales related to the Greg Norman Collection wholesale business which was divested in November 2006.
2) Excluding acquisitions and finance leases.
The adidas Group sells products in virtually Europe A IHF Men’s World Championship, Croatia
every country around the world. As at Decem- 01 adidas Group Headquarters January 16 – February 1, 2009
Herzogenaurach, Germany adidas Official Partner of International Handball Federation
ber 31, 2008, the Group had 190 subsidiaries
02 Reebok Europe B NHL All-Star Game, Montreal/Quebec, Canada
worldwide with our headquarters located in Amsterdam, Netherlands January 25, 2009
Herzogenaurach, Germany. Our Group has 03 TaylorMade-adidas Golf Europe Reebok-CCM Hockey Exclusive Licensee of National Hockey League
Basingstoke, UK C NFL Super Bowl, Tampa/Florida, USA
also assembled an unparalleled portfolio of
04 adidas International Trading February 1, 2009
promotion partnerships around the world, Amsterdam, Netherlands Reebok Official Outfitter of National Football League
including sports associations, events, teams 05 adidas International Marketing D NBA All-Star Game, Phoenix/Arizona, USA
Amsterdam, Netherlands February 15, 2009
and individual athletes. Our Group’s most
adidas Official Outfitter of National Basketball Association
important locations and upcoming sporting North America E Boston Marathon, Boston/Massachusetts, USA
events are highlighted on the world map. 06 adidas North America April 20, 2009
Portland/Oregon, USA adidas Official Apparel and Footwear Outfitter
07 Reebok International Headquarters F Flora London Marathon, London, UK
Canton/Massachusetts, USA April 26, 2009
08 The Rockport Company Headquarters adidas Official Sponsor
Canton/Massachusetts, USA G French Open, Paris, France
09 Reebok–CCM Hockey Headquarters May 24 – June 7, 2009
Montreal/Quebec, Canada adidas Official Partner of Roland Garros
10 TaylorMade-adidas Golf Headquarters H UEFA Champions League Final, Rome, Italy
Carlsbad/California, USA May 27, 2009
11 Sports Licensed Division Headquarters adidas Official Ball Supplier for UEFA Champions League
Canton/Massachusetts, USA I ICC World Twenty20, UK
June 5 – 21, 2009
Asia adidas Official Supplier of Australia and England cricket teams
12 adidas Group Asia J FIFA Confederations Cup, South Africa
Hong Kong, China June 14 – 28, 2009
13 TaylorMade-adidas Golf Asia adidas Official Partner of Fédération Internationale de Football
Tokyo, Japan Association
14 adidas Sourcing K MLB All-Star Game, St. Louis/Missouri, USA
Hong Kong, China July 14, 2009
Reebok Official Licensee of Major League Baseball fan and lifestyle
Latin America apparel and Official Authentic Collection Footwear Supplier
15 adidas Group Latin America L IAAF World Championships, Berlin, Germany
Panama City, Panama August 15 – 23, 2009
adidas Official Sponsor of International Association of Athletics
Federations
M real,– Berlin Marathon, Berlin, Germany
September 20, 2009
adidas Official Partner
062 Group Management Report – Our Group Structure and Strategy — Major Locations and Promotion Partnerships
B E I G M L
NHL All-Star Game, Boston Marathon, ICC World Twenty20, French Open, real,– Berlin Marathon, IAAF World Champion-
Montreal/Quebec, Canada Boston/Massachusetts, USA UK Paris, France Berlin, Germany ships, Berlin, Germany
06 02, 04, 05
03
09 01
07, 08,11 13
10
12, 14
D F A
NBA All-Star Game, 15 Flora London Marathon, IHF Men’s World Champion-
Phoenix /Arizona, USA London, UK ship, Croatia
K C J H
MLB All-Star Game, NFL Super Bowl, FIFA Confederations Cup, UEFA Champions League
St. Louis /Missouri, USA Tampa / Florida, USA South Africa Final, Rome, Italy
064 Group Management Report – Our Group Corporate Functions — Global Operations
Rockport purchased approximately 9 million pairs of footwear Apparel production by region 1) Approximately 65% of adidas and Reebok branded
in 2008, which represents a decrease of 17% versus the prior hardware produced in China
year. Products were primarily sourced from factories in China In 2008, the vast majority (i.e. 98%) of adidas and Reebok
(72%), Vietnam (17%), Indonesia (8%) and Brazil (3%). The larg- Americas 5%
branded hardware products, such as balls and bags, was also
est factory accounted for 25% of the total sourcing volume of produced in Asia (2007: 96%). China remained our largest
the Rockport brand. source country, accounting for 65% of the sourced volume,
Asia 83% followed by Vietnam with 21% and Pakistan with 10%. The
Volume of apparel production increases remaining 4% was sourced via other Asian and European coun-
In 2008, we sourced 83% of the total apparel volume for Europe 12%
tries. The total 2008 hardware sourcing volume was approxi-
adidas, Reebok and adidas Golf from Asia (2007: 82%). The mately 42 million units (2007: approx. 39 million units) with the
higher proportion of Asian-sourced apparel was attribut- largest factory accounting for 30% of production.
able to continued sales growth in Asia, which in turn required
higher sourcing volumes from the region. Europe remained TaylorMade and Reebok-CCM Hockey sourced 93% and 75% of
the second largest apparel sourcing region, representing 12% 1) Figures only include adidas, Reebok and adidas Golf. their hardware volumes from Asia, respectively (2007: 92% and
of the volume (2007: 13%). The Americas accounted for 5% of 70%). In addition, both brands sourced a small portion of hard-
the volume (2007: 5%). China was the largest source coun- ware products in the Americas. At TaylorMade, the majority of
try, representing 36% of the produced volume, followed by Apparel production 1) golf club components were manufactured by suppliers in China
Thailand with 14% and Indonesia with 10%. The only signifi- in million units and assembled by TaylorMade in the USA, China and Japan.
cant change compared to the prior year was in China whose
overall representation increased 5 percentage points due to 2006 225 Unchanged vision: closest to every consumer
the strong growth in apparel sales in that market in 2008. In 2007 252 The vision of Global Operations is to be closest to every con-
total, our suppliers produced approximately 284 million units sumer. This means meeting consumer demand in various
2008 284
of apparel in 2008 (2007: approx. 252 million units). The largest distribution channels with the right product (in terms of quality,
apparel factory produced approximately 10% of this apparel size, colour, style and material) in the right store at the right
1) Figures only include adidas, Reebok and adidas Golf.
volume in 2008 (2007: 12%). In addition, Reebok-CCM Hockey time.
sourced around 3 million units of apparel (game wear, jerseys
and headwear) in 2008. The vast majority of this volume was In 2008, we had further evidence of the success of our efforts,
also produced in Asia, while small portions were sourced from Hardware production by region 1) most visibly with the Beijing Olympic Games. In total, we
the Americas (particularly Canada) and Europe. The Sports shipped 2.9 million units, with many produced on very short
Licensed Division sourced approximately 22 million units of leadtimes (e.g. more than 210,000 in less than seven days).
apparel and 17 million units of headwear (2007: 21 million and Europe 2% The flexibility of our supply chain even allowed us to success-
18 million, respectively). The majority of purchased apparel fully replenish 300,000 units that were unplanned, sometimes
products was sourced as unfinished goods from Central in as little as nine days after order placement. We achieved
America (58%) and Asia (10%), and was subsequently finished Asia 98% similar levels of service to our customers during the UEFA
in our own screen-printing facilities in the USA. On the other EURO 2008™ tournament and the UEFA Champions League
hand, the majority of headwear sourced was finished products final. Our ability to deliver on short leadtimes and continuous
manufactured in Asia (97%) and the USA (3%). replenishment needs during large, global events such as these
shows that we are moving closer to realising our vision.
066 Group Management Report – Our Group Corporate Functions — Global Operations — Sustainability
Sustainability Workplace Standards set rules in supply chain Encouraging self-governance
Covering health and safety, labour rights and environmental Good management systems help factories improve their day-
The adidas Group must manage wide-ranging protection at our own sites and our suppliers’ factories is of to-day operations and support the process of internalisation
commercial and competitive pressures to highest importance to us. Therefore, we have defined rules and self-governance. Therefore, we support our core business
deliver growth. Simultaneously, we have a or standards by our own corporate values as well as by what partners in establishing management systems with interna-
society expects of global businesses. We have condensed our tionally recognised standards such as ISO 14001 for quality and
responsibility towards our employees and the rules into a supplier code of conduct that we call our “Work- environmental management. By running a certified manage-
environment, to ensure that decent working place Standards”. These are based on International Labour ment system, our suppliers demonstrate commitment to con-
conditions and environmental standards are Organization (ILO) and UN conventions relating to human rights tinuously enhancing their performance. We help them build or
and employment practices, and they follow the WFSGI model improve human resources systems to maintain proper working
met throughout our global organisation and code of conduct. Our Workplace Standards contain clear rules conditions, including factory grievance systems to routinely find
supply chain. We always strive to manage both of conduct regarding: and fix non-compliance issues. Further, by enforcing employ-
our own activities and our supply chain respon- ment standards at our suppliers’ sites, we empower workers
— Environmentally sound, safe and healthy working to protect their own rights and take an active role in decision-
sibly and to reduce our environmental impact. conditions making.
Moreover, we believe that acting as good cor- — Fair wages and benefits
porate citizens will improve our corporate repu- — Freedom of association In 2008, our Group’s supply base included 20 athletic footwear
— Prohibition of excessive overtime, forced and child labour suppliers’ factories, which were OHSAS 18000 and /or ISO
tation and hence our economic value, helping — Protection against harassment and discrimination 14001 certified. These factories produced around 73% of our
us to be a sustainable company. footwear sourcing volume.
These Standards help us select manufacturing partners and
serve as guiding principles in the early identification and treat- Training to achieve sustainable compliance
Active engagement with stakeholders ment of potential issues of concern at our suppliers’ sites. To To achieve long-term sustainable compliance in the supply
At the adidas Group, we pursue a policy of open dialogue with illustrate how suppliers should implement our Standards, we chain, we consider training even more important than moni-
our numerous stakeholders, involving them in key social and have created a set of guidelines for use in factory settings, toring and policing factories. Our SEA team offers specific
environmental decisions that shape our day-to-day operations. which we update on a regular basis. The guidelines are also training courses and workshops for factory supervisors and
Through in-depth engagement with the Better Cotton Initiative used by our Social and Environmental Affairs (SEA) team to managers to help them apply our Standards and implement
and the AFIRM Working Group, we work closely with leading determine suppliers’ compliance with our Standards and to best practices. These workshops include, for example, intro-
companies from a variety of sectors to develop sustainable advise and train our suppliers in improving their social and ductory training on our Workplace Standards and SEA operat-
business approaches and to debate social and environmental environmental performance. ing guidelines, detailed training on effective health, safety
topics on a global level. This is also supported by our member- and environmental practices as well as training in the correct
ship in organisations such as the World Business Council Careful supplier selection application of rating and compliance planning tools and sup-
for Sustainable Development (WBCSD), the World Federation To improve working conditions throughout our supply chain, plier self-assessment methods. Further, we promote the
of the Sporting Goods Industry (WFSGI), the Fair Factories our Group SEA team works closely with the Global Operations establishment of sustainable structures that actively involve
Clearinghouse (FFC) and the Fair Labor Association (FLA). In function on supplier selection. The SEA team assesses all workers and management of our suppliers as well as local
addition, we always strive to report in an open and transparent potential new suppliers and orders can only be placed with a employee associations and non-governmental organisations
way. Comprehensive information on the Group’s sustainability new supplier when SEA approval has been granted. (NGOs). The team also organises workshops for licensees,
programme is provided in our 2008 Social and Environmental agents and adidas Group business entities in order to build
Online Report on our website www. adidas-Group.com / personnel capacities throughout our company. In this way,
sustainability. acceptable working conditions become a routine part of busi-
ness activities. In 2008, the SEA team conducted 251 training
sessions and workshops (2007: 267).
requisite to sustaining our position as the per- integrate cost and production process aspects into the develop-
Award Magazine Product Segment
formance leader in the sporting goods industry. ment phase. As soon as a new technology is deemed viable,
it is produced as a physical sample. Samples are then tested Best update
As a result, research and development (R&D) is extensively by members of our innovation team as well as top
Runner’s
World
Supernova™
Cushion
adidas
a cornerstone for the continued success of our athletes and teams. Only when these tests have been success- Best motion-stabilising shoe Running Supernova™ adidas
Network Sequence
business. We invest considerable resources into ful are technologies handed over to product marketing which
Best inventions of 2008 Time Bounce:S adidas
commercialises the technology to a final product. Magazine
developing and commercialising technological Best debut Runner’s Premier Reebok
innovations as well as fresh design ideas, in Important efficiency improvements made in 2008
World Verona KFS
Innovation Plus X Award Premier Reebok
order to best unite our brands’ values with the We constantly strive to improve our R&D processes to fulfil our SmoothFit™
mission to develop products that give our athletes and consum- Innovation Plus X Award TOUR360 LTD TaylorMade-
unique needs of our consumers. The research ers a tangible advantage over the competition. In 2008, our adidas Golf
and development process is driven by teams efforts focused on increasing efficiencies throughout the R&D
of employees with diverse professional back- process. One aspect of this is the sharing of fundamental tech-
nologies across our brands. In 2008, certain technologies used adidas Group R & D structure
grounds. In 2009, one of our top R&D focus in the production of adidas football boots were also applied at
priorities will be the further development and Reebok. We also stepped up the transfer of technologies across
commercialisation of intelligent products. different categories. The TECHFIT™ technology, for example,
adidas Group
has now also been introduced in the basketball category. In
golf, Movable Weight Technology™ – originally used in metal-
woods – is now also used in putters. TaylorMade-
adidas Reebok
adidas Golf
R&D an integral part of the product creation process
Research and development within the adidas Group follows In addition, we have put emphasis on streamlining the develop- Know-how transfer
a decentralised approach. Each brand segment runs its own ment process. As a result, we have significantly decreased the
research, design and development activities. The teams gener- number of physical samples by using virtual sampling tech-
ally have either a category or a technology focus. Fundamental nologies instead. This results in lower costs and a reduction of
TaylerMade-adidas Golf
and biomechanical research, however, is shared across the process time. adidas categories Reebok categories
categories
Group. Within the segments, R&D is not a separate organisa-
tional entity, but is closely integrated with the sourcing, design adidas Innovation Team drives brand’s R&D initiatives
and product marketing functions. As a result, all R&D activities R&D activities at brand adidas focus on the development of Know-how transfer Know-how transfer Know-how transfer
are focused on producing results directly applicable to a spe- innovative footwear, apparel and hardware technologies. To
cific product. At the beginning of the product creation process, solidify adidas’ position as a leader in technology and innova-
marketing defines a development focus. This is derived on a tion, the adidas Innovation Team (ait) is responsible for the
case-by-case basis from a combination of consumer research ongoing development of new technologies and concepts in all
and feedback, competition analysis and own product testing. key product categories.
Independently from specific development requests, our innova-
tion teams also analyse new materials, production processes
or scientific research – often even from other industries – with
regard to ideas for potential product innovations which are
presented to product marketing at an early stage to assess
074 Group Management Report – Our Group Corporate Functions — Research and Development
Major R & D locations and activities The Team is divided into groups that focus on individual prod- Industry-leading R&D at TaylorMade-adidas Golf
uct categories such as basketball, football or cross-category TaylorMade-adidas Golf’s R&D team is focused on continually
project areas such as intelligent products or energy manage- designing and developing industry-leading products. The team
ment systems (cushioning technologies). Approximately half of is structured according to the different product categories in
Main activities Location
the groups are located in Portland /Oregon, USA. The other half golf and is located in Carlsbad /California, USA.
adidas Global Development Herzogenaurach, is based in Herzogenaurach, Germany. Dedicated innovation
Centre (ait) Germany development centres in Asia focused on the production of pro- Selective purchase of external R&D expertise
Global Development Portland /Oregon, totypes support the product creation process. In addition to its internal R&D efforts, the adidas Group
Centre (ait) USA also purchases a limited amount of R&D expertise from
Global Research and Scheinfeld, R&D activities at Reebok follow divisional segment structure well-established research partners. We enter into external
Testing Centre (ait) Germany Within the Reebok segment, each division runs separate R&D collaborations to gain access to highly specialised knowl-
Asian Design and Shanghai, teams due to their heterogeneous product offerings. edge in certain areas of expertise we have decided not to fill
Development Centre China internally. This strategy allows for greater flexibility and faster
Asian Product Tokyo, — At brand Reebok, the Reebok Advanced Concepts (RAC) access to know-how that may otherwise require considerable
Creation Centre Japan
and Reebok Equipment teams located in Canton /Massachu- time and resources if built up within the Group. To increase
Reebok Global Development Canton /Massachusetts,
setts, USA, create footwear, apparel and equipment with the efficiency and protect research results, collaborations are
and Testing Centre USA
primary focus on developing products that provide maximum usually long-term and exclusive. All projects carried out with
Reebok-CCM Development Montreal /Quebec,
Hockey and Testing Centre Canada comfort and fit for the consumer. external partners are based on a clearly defined mandate out-
Development Saint-Jean-sur-Richelieu / lining the project scope to ensure consistency with the Group’s
and Testing Centre Quebec, Canada — The R&D team at Reebok-CCM Hockey, located at two dif- R&D focus. Major adidas relationships exist with the Univer-
Rockport Global Development Canton /Massachusetts, ferent locations in Canada, is dedicated to continuously creating sities of Loughborough, England, the University of Calgary,
and Testing Centre USA state-of-the-art hockey equipment for both professional and Canada, the Universities of Fribourg and Erlangen-Nuremberg,
TaylorMade- Global Development Carlsbad /California, recreational players. Germany, and the Fraunhofer Institute, Germany. The brand
adidas Golf and Testing Centre USA has also built up a network of medical experts advising adidas
— Rockport’s R&D function located in Canton /Massachusetts, on relevant new findings in their respective areas of expertise.
USA, is a vertically integrated organisation that covers all In 2008, the further development of compression apparel,
aspects of strategy, research, design, engineering and testing, for example, was based on a scientific analysis carried out in
while incorporating the Group’s advanced proprietary athletic cooperation with the University of Calgary on how different
footwear technologies into casual and dress shoes. muscle groups work together. adidas also acquired Textronics,
Inc., a specialist in the development of wearable sensors for
In all Reebok divisions, R&D includes a development /engi- use in fitness and health monitoring, to strengthen the brand’s
neering team as well as a design and commercialisation team, leading position in the intelligent product category. Reebok
a human performance laboratory and a prototype sampling partnered with the University of Delaware in the develop-
group with the product marketing teams in each strategic busi- ment of the EasyTone™ shoe. Using electromyographic tests,
ness unit. Major projects involve extensive fit, wear and materi- the activity of individual muscles was measured. TaylorMade-
als testing to qualify and assess the durability and functionality adidas Golf has cooperations with the Universities of Calgary,
of Reebok products. Canada, and Portland, USA.
076 Group Management Report – Our Group Corporate Functions — Research and Development
The system comprises five key components: a mobile phone, a Innovation continues as key success factor for Major 2008 product launches
heart rate monitor, a stride sensor chip to fit all adidas running TaylorMade-adidas Golf
footwear, compatible adidas apparel and the miCoach website In the TaylorMade-adidas Golf segment, current products (i.e.
to create tailored training programmes. Sales of products using products launched in the last 18 months, which is the typical
Product Brand
TECHFIT™ technology doubled in 2008 following extension of product lifecycle in golf) represented 92% of total hardware
the technology into additional categories such as basketball. sales (2007: 75%). Products that had been brought to market adidas by Stella McCartney golf adidas
three or more years ago accounted for 1% (2007: 1%). Among apparel collection
Product innovation at Reebok focuses on key categories the highlight product launches in 2008 was the next generation adidas Originals adidas Grün collection adidas
In 2008, we made progress in improving the quality and appeal of Burner® drivers using SuperFast and Dual Crown technology adidas Originals Handbags For Feet collection adidas
of Reebok’s product portfolio especially in the sports category. promoting faster swing speed, a higher launch angle and lower adidas Originals Denim by Diesel adidas
Product launches focused on those categories the brand has spin-rate. Together this enables players to achieve longer apparel collection
defined as core to its future positioning, i.e. Women’s Fitness, distance. The Burner® family of drivers accounted for approxi- adiSTAR® Control 4 running shoe adidas
Men’s Sport and Classics. At brand Reebok, 66% of ordered mately 15% of TaylorMade-adidas Golf sales in 2008. In this adiSTAR® Revolt running shoe adidas
footwear was launched in 2008 (2007: 61%). Only 14% of year, TaylorMade also launched the Itsy Bitsy Spider Putter adiZero™ CS running shoe adidas
ordered footwear products were related to products introduced featuring Movable Weight Technology™ and AGSI+ grooved Barricade tennis shoe adidas
three or more years ago (2007: 10%). In 2008, Reebok brought insert technology, which is designed to grip the ball at impact, F50 TUNIT™ football boot adidas
Men’s training adidas TECHFIT PowerWEB adidas
to market SmoothFit™, a unique technology that eliminates all reducing backspin and promoting forward spin.
miCoach training system adidas
exposed stitching in shoes and apparel to reduce the amount of
mi Originals customisation tool adidas
abrasion against the foot and body. The technology was rolled Ambitious 2009 R&D targets
Team Signature Creator basketball shoe adidas
out across different categories such as training and running Research and development is crucial for our Group’s success
Women’s Yatra training collection adidas
and is now used in more than 70 Reebok products. Reebok as we continuously strive to meet and exceed the expectations Avon Pink Ribbon collection Reebok
also launched a number of footwear products across different of our consumers and customers with respect to technology Big Papi 2M (baseball footwear) Reebok
categories containing further refinements to its KineticFit and design. The awards we attained in 2008 are further proof Freestyle Cities collection Reebok
(KFS) technology. This technology makes use of a series of of our technology leadership within the sporting goods indus- HEXRIDE Rally running shoe Reebok
engineered stretch panels positioned in key areas of the shoe try. Our Group remains committed to bringing at least one new KFS Sprintfit II Pro football boot Reebok
which accommodate changes in the size and shape of an revolutionary technology or groundbreaking evolution to the Premier Verona KFS running shoe Reebok
athlete’s foot as it moves. market each year see Group Strategy, p. 046 . In 2009, intel- Vince Young Electrify SD Reebok
ligent product technologies will be at the forefront of adidas (American football boot)
At Reebok-CCM Hockey, products launched in 2008 accounted R&D activities as we aim to position the brand as the technol- Voltron men’s footwear collection Reebok
for 31% of sales in North America (2007: 58%). Only 16% of ogy leader in this rapidly growing category. Reebok’s focus Women’s American football Reebok
sales in this region were generated with products introduced will continue to be on technologies enhancing comfort and fit apparel collection
three or more years ago (2007: 12%). In 2008, Reebok-CCM that are tangible and easily understandable for the consumer. Yao Pump™ Omni HEXRIDE basketball shoe Reebok
CCM Vector U+™ Stick Reebok-CCM Hockey
Hockey launched the revolutionary U+™ Skate. Through the TaylorMade-adidas Golf’s development efforts will centre on
Reebok OPS 7K Sickick Stick Reebok-CCM Hockey
use of U FOAM, the skate customises to the foot after being further increasing the adaptability of its products to individual
Rockport Signature Series Rockport
heated once. The use of the new lightweight, revolutionary player characteristics.
Burner® and Burner® TP balls TaylorMade-adidas Golf
rocket runner blade makes it the lightest skate on the market,
my TP ball TaylorMade-adidas Golf
supporting CCM’s position as one of the leading skate brands r7® CGB MAX Limited driver TaylorMade-adidas Golf
in the National Hockey League (NHL). r7® CGB MAX Rescue hybrid TaylorMade-adidas Golf
TECHFIT PowerWEB TaylorMade-adidas Golf
Due to the different business model for the Rockport brand adidas Golf apparel line
with its larger focus on non-athletic styles, the impact from Tour Burner® iron TaylorMade-adidas Golf
new styles is significantly lower. As a result, 51% of ordered Tour Burner® TP driver TaylorMade-adidas Golf
products were launched in 2008 (2007: 50%). 18% of ordered Tour Preferred® Red and Black golf balls TaylorMade-adidas Golf
products were related to products introduced three or more TOUR360 LTD adidas Golf shoe TaylorMade-adidas Golf
years ago (2007: less than 20%). In 2008, R&D efforts concen-
trated on further developing the brand’s Machine Washable
and Walk Dry technologies as well as improving Rockport’s
proprietary Dynamic Suspension System.
3
Risk and Opportunity Report 107
strong financial performance. Group sales and Global economic growth at its lowest level in six years
Latin
profitability developed in line with Manage- In 2008, the global economy grew 2.0%. This represents a Global Europe USA Asia 2) America
sharp slowdown versus the 2007 growth rate of 4.0%. The
ment’s initial expectations. Currency-neutral crisis that started in 2007 in the banking sector spilled over into
sales increased 9%. Double-digit sales growth the real economy, with each region seeing a slow moderation
in GDP growth. The crisis intensified from October onwards, 6
in the adidas segment had the biggest impact
with all key economic indicators spiralling downwards.
on this development. In euro terms, adidas
Group revenues grew 5% to € 10.799 billion in In Europe, full year GDP increased by 0.9% (2007: 2.8%). A
4
2008 from € 10.299 billion in 2007. The Group’s moderation of growth in Western Europe was only partly offset
by the region’s emerging markets. The latter grew their econ-
gross margin increased 1.3 percentage points omy by 4.6%, but also showed signs of a slowdown. Despite a
to 48.7% in 2008 (2007: 47.4%) mainly driven by slight improvement mid-year, consumer confidence in Europe 2
an improving regional mix, further own-retail declined throughout 2008. As a result of the crisis, unemploy-
ment rose to its highest level since February 2007.
expansion and a more favourable product mix.
The Group’s gross profit increased 8% to reach In the USA, economic growth decreased to 1.3% in 2008 (2007: 0
€ 5.256 billion in 2008 versus € 4.882 billion 2.0%). Depression of the housing market and a troubled bank- 2006 2007 2008
ing sector suffering from the liquidity crisis drove this develop-
in 2007. The Group’s operating margin grew ment. As a result of the economic difficulties, the unemploy-
1) Real, percentage change versus prior year; 2008 figures are estimated.
2) Asia also includes Japan and Area Pacific.
0.7 percentage points to 9.9% from 9.2% in ment rate rose to a 16-year high of 7.2% in December, and Source: Goldman Sachs.
2007, due to the higher gross margin which brought US consumer confidence to an all-time low.
more than offset higher net other operating In Asia, most of the region’s economies continued on a strong Quarterly unemployment rate by region
expenses and income as a percentage of sales. upswing, albeit at a lower rate than in previous years. Asia’s in % of total active population
The Group’s operating profit increased 13% to GDP grew 4.2% in 2008 (2007: 6.9%). GDP growth in China was
9.0%, while Japan’s economy shrank 0.2%. Developing Asian Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008
€ 1.070 billion in 2008 versus € 949 million in countries indirectly suffered from the crisis, experiencing a
2007. The Group’s net income attributable to decline in exports and foreign investment. Consumer confi- USA 1) 4.9 5.1 5.6 6.2 7.2
shareholders grew 16% to € 642 million from dence in Asia decreased in most countries, including Japan Euro Zone 2) 7.2 7.2 7.4 7.6 8.0
and China. Japan 3) 3.8 3.8 4.1 4.0 4.4
€ 551 million in 2007. Diluted earnings per 1) Source: US Bureau of Labor Statistics.
share increased 20% to € 3.07 in 2008 versus Despite slightly slower activity, GDP growth in Latin America 2) Source: Eurostat.
3) Source: Japan Ministry of Internal Affairs and Communications.
€ 2.57 in 2007. reached 4.2% in 2008 (2007: 5.5%). Economic growth lost
momentum in the last months of the year due to a decline in
commodity prices and lower exports. Consumer confidence in
Quarterly development of Consumer Price Index 1)
the region declined in 2008, especially towards the end of the
year. by region
080 Group Management Report – Our Financial Year Group Business Performance — Economic and Sector Development
Quarterly consumer confidence development Global sporting goods industry hit by economic downturn From a channel perspective, sales also developed differently
by region
In 2008, growth of the sporting goods industry was affected by by category. The family footwear channel increased at a mid-
slower economic expansion in most major markets. However, single-digit rate. The sporting goods and mall athletic specialty
the extent of the crisis differed from region to region. The channels, however, were down at a low-single-digit rate. In
Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008
sporting goods markets in the USA and Western Europe were apparel, the sporting goods channel increased sales, while the
USA 1) 90.6 65.9 51.0 61.4 38.6 the most hit while emerging markets continued to post signifi- mall athletic specialty and family/volume channels were down
Euro Zone 2) (9) (12) (17) (19) (30) cant growth. double-digit.
Japan 3) 38.3 37.0 32.9 31.8 26.7
1) Source: Conference Board.
Mixed performance of European sporting goods industry Asian sporting goods industry driven by emerging markets
2) Source: European Commission. In 2008, the European sporting goods industry saw diverse The Asian sporting goods industry showed continued double-
3) Source: Economic and Social Research Institute, Government of Japan. developments among the various markets. Despite the positive digit growth in 2008, driven by most major markets. The
impact of the UEFA EURO 2008™, all major Western European emerging markets were the primary driver of growth, supported
countries posted a decline in sales. The UK led the downward by increasing consumer demand and continued retail expan-
Exchange rate development 1) trend, being faced with a particularly tough retail environment. sion. In addition, the Olympic Games held in Beijing raised
€ 1 equals Emerging markets continued to show a strong performance, awareness for sports among the Chinese population and in
however at a slower pace than in the prior year. neighbouring countries.
Average Average
rate 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 rate 2008 The decline in Western Europe hit both the footwear and Despite weak private consumption in Japan, the industry grew
apparel segment, albeit in diverse degrees. Declining volumes at a mid-single-digit rate in 2008. Sales in footwear increased
USD 1.3709 1.5812 1.5764 1.4303 1.3917 1.4702
accounted for the major part of the sales drop. Footwear at a mid-single-digit rate, while apparel sales grew at a low-
GBP 0.6845 0.7958 0.7923 0.7903 0.9525 0.7956
sales decreased at a mid-single-digit rate while apparel sales single-digit rate.
JPY 161.19 157.37 166.44 150.47 126.14 152.39
declined at a high-single-digit rate. The decline in footwear
1) Spot rates at quarter-end.
sales was driven by the outdoor, training and basketball Latin American sporting goods market increases
categories. Among the distribution channels, clothing stores, In Latin America, the sporting goods market developed in
general shoe stores and sports shoe stores declined at a line with the overall economy and grew at a single-digit rate
Oil price development 1) double-digit rate while sporting goods stores were able to compared to the prior year. Both apparel and footwear sales
in US $ outperform the market, although they were still down. increased in 2008 compared to the prior year, reflecting higher
consumer spending in the region.
Jan. 1, 2007 Dec. 31, 2008 US sporting goods industry endures tough retail market
In the US sporting goods industry, the sales trends differed adidas Group outpaces overall economic and industry growth
significantly by category. Footwear sales grew, while apparel In 2008, adidas Group revenues grew faster than both the
sales declined. global economy and the sporting goods industry in all regions,
120 with the exception of North America. From a macroeconomic
The slight expansion of footwear sales was supported by an perspective, the two most important indicators of how
increase in average selling prices. The main contributor to conducive a region’s economic development is to our business
80 the sales growth was the running category (mid-single-digit are GDP growth and consumer confidence. Performance in the
growth), while basketball, lifestyle and training decreased. sporting goods industry, however, is often more influenced by
Apparel sales were down low-single-digit as average sell- product category trends, development of key retail partners as
ing prices declined. The sales drop was driven by the training well as pricing and volume trends in the sector.
40 category, which declined at a high-single-digit rate, and to a
lesser extent by the basketball category.
0
1) West Texas Intermediate Cushing crude oil.
Source: Bloomberg.
082 Group Management Report – Our Financial Year Group Business Performance — Income Statement
2008 net sales by segment 1) adidas and TaylorMade-adidas Golf drive 2008 net sales growth (currency-neutral) 1)
top-line performance by segment and region in %
The adidas segment was the most significant contributor to
TaylorMade- Group sales growth in 2008. Currency-neutral adidas segment
North Latin
adidas Golf 8% revenues increased 14% during the period, driven by double- Europe America Asia America Total
digit increases in all major performance categories. Currency-
neutral sales in the Reebok segment decreased 2% versus adidas 13 (3) 24 21 14
adidas 72%
the prior year. Growth in the running category was offset by Reebok (3) (16) 7 192 (2)
declines in most other categories. At TaylorMade-adidas TaylorMade-
Golf, currency-neutral revenues increased 7%, due to posi- adidas Golf 17 3 10 38 7
Reebok 20% Total 11 (8) 20 42 9
tive sales momentum in apparel, footwear, balls and putters.
Sales recorded in the HQ /Consolidation segment, which reflect 1) Versus the prior year.
Europe 43% Latin America 8% all segments in euro terms. adidas sales increased 10% to
€ 7.821 billion in 2008 from € 7.113 billion in 2007. Sales at adidas 10 (10) 23 16 10
Reebok (8) (22) (1) 170 (8)
Reebok decreased 8% to € 2.148 billion versus € 2.333 billion
TaylorMade-
in the prior year. TaylorMade-adidas Golf sales increased 1%
adidas Golf 0 (4) 8 28 1
to € 812 million in 2008 from € 804 million in 2007. HQ /Consol-
Total 7 (14) 18 36 5
idation sales decreased 64% to € 18 million from € 49 million
1) Versus the prior year.
in the prior year.
North America 24%
Asia 25% Double-digit currency-neutral sales increase
in nearly all regions
adidas Group sales grew at double-digit rates on a currency-
1) Excluding HQ /Consolidation. neutral basis in all regions except North America in 2008.
Group sales in Europe grew 11% on a currency-neutral basis
as a result of strong growth in emerging markets. In North
Net sales by region America, Group sales declined 8% on a currency-neutral basis
€ in millions due to lower sales in the USA. Sales for the adidas Group in
Asia increased 20% on a currency-neutral basis, driven by
North Latin
particularly strong growth in China. In Latin America, sales
Europe America Asia America Total 1) grew 42% on a currency-neutral basis, with double-digit
increases coming from most of the region’s major markets,
2004 2) 3,068 1,332 1,192 224 5,860 supported by the new Reebok companies in Brazil /Paraguay
2005 2) 3,166 1,561 1,523 319 6,636 and Argentina.
2006 3) 4,162 3,234 2,020 499 10,084
2007 4,369 2,929 2,254 657 10,299
2008 4,665 2,520 2,662 893 10,799
1) Including HQ /Consolidation.
2) Figures reflect continuing operations as a result of the divestiture of the Salomon
business segment.
3) Including Reebok business segment from February 1, 2006 onwards. Including
Greg Norman apparel business from February 1, 2006 to November 30, 2006.
084 Group Management Report – Our Financial Year Group Business Performance — Income Statement
Gross margin Other operating income grows 28% Gross profit by quarter
in %
Other operating income includes items such as releases € in millions
of accruals and provisions and gains from the disposal of
2004 1) 48.0 fixed assets see Note 24, p. 186 . Other operating income Q1 2007 1,188
1)
increased 28% to € 103 million in 2008 from € 80 million in Q1 2008 1,288
2005 48.2
2007. This development is mainly due to one-time book gains
2006 2) 44.6 in connection with the acquisition of Ashworth (€ 21 million) Q2 2007 1,138
2007 47.4 and the divestiture of the Maxfli business (€ 5 million) see Q2 2008 1,263
TaylorMade-adidas Golf Business Performance, p. 105 .
2008 48.7 Q3 2007 1,429
Q3 2008 1,511
Higher other operating expenses as a percentage of sales
1) Figures reflect continuing operations as a result of the divestiture of the Salomon
business segment. Other operating expenses, including depreciation and amorti- Q4 2007 1,127
2) Including Reebok business segment from February 1, 2006 onwards. Including sation, consist of items such as marketing working budget and Q4 2008 1,194
Greg Norman apparel business from February 1, 2006 to November 30, 2006.
operating overhead costs see Note 25, p. 187. Other operating
expenses as a percentage of sales increased 0.6 percentage
points to 40.5% in 2008 from 40.0% in 2007. Higher expenses
Gross profit to support the Group’s growth in emerging markets were
€ in millions partly offset by efficiency improvements and a slight decrease
in marketing working budget expenditure as a percentage of
2004 1) 2,813 sales. In absolute terms, other operating expenses increased
2005 1)
3,197 6% to € 4.378 billion in 2008 from € 4.115 billion in the prior
year.
2006 2) 4,495
2005 1)
38.8 Finance & administration 748 746
2006 2) 37.3
Total 4,378 4,115
2007 40.0
2008 40.5
2007 13.4
2008 13.2
086 Group Management Report – Our Financial Year Group Business Performance — Income Statement
EBITDA increases 10% EBITDA Operating profit
The Group’s earnings before interest, taxes, depreciation € in millions € in millions
and amortisation of tangible and intangible assets (EBITDA)
increased 10% to € 1.277 billion in 2008 (2007: € 1.165 bil- 2004 1) 2) 716 2004 1) 584
lion). Depreciation and amortisation expense for tangible 2) 1)
2005 806 2005 707
and intangible assets with limited useful lives grew 11% to
€ 234 million in 2008 (2007: € 211 million). This develop- 2006 3) 1,078 2006 2) 881
ment was mainly a result of increased fixed assets related to 2007 1,165 2007 949
our own-retail expansion. In accordance with IFRS, intangible
2008 1,277 2008 1,070
assets with unlimited useful lives (goodwill and trademarks)
are tested annually and additionally when there are indications
1) Adjusted to reflect the application of IAS 32. 1) Figures reflect continuing operations as a result of the divestiture of the Salomon
of potential impairment. No impairment of intangible assets 2) Figures reflect continuing operations as a result of the divestiture of the Salomon business segment.
with unlimited useful lives was incurred in 2008 and 2007. business segment. 2) Including Reebok business segment from February 1, 2006 onwards. Including
3) Including Reebok business segment from February 1, 2006 onwards. Including Greg Norman apparel business from February 1, 2006 to November 30, 2006.
Greg Norman apparel business from February 1, 2006 to November 30, 2006.
Operating margin improves 0.7 percentage points
The operating margin of the adidas Group increased 0.7 per-
centage points to 9.9% in 2008 (2007: 9.2%). This development Operating profit by quarter
Operating margin
was in line with Management’s initial expectation of an operat- € in millions
ing margin of at least 9.5%. The operating margin increase in %
was a result of the gross margin improvement and higher Q1 2007 229
2004 1) 10.0
other operating income, which more than offset higher other Q1 2008 282
operating expenses as a percentage of sales. As a result, Group 2005 1) 10.7
Q2 2007 188
operating profit increased 13% in 2008 to reach € 1.070 billion 2006 2) 8.7
Q2 2008 208
versus € 949 million in 2007.
2007 9.2
Q3 2007 471
2008 9.9 Q3 2008 473
1) Figures reflect continuing operations as a result of the divestiture of the Salomon Q4 2007 61
business segment.
Q4 2008 107
2) Including Reebok business segment from February 1, 2006 onwards. Including
Greg Norman apparel business from February 1, 2006 to November 30, 2006.
2007 134 € 36 million in the prior year as a result of higher interest 2007 815
income from cash deposits see Note 27, p. 188 .
2008 166 2008 904
Q3 2007 441
Q3 2008 431
Q4 2007 30
Q4 2008 54
088 Group Management Report – Our Financial Year Group Business Performance — Income Statement
Net income attributable to shareholders grows 16% Net income attributable to shareholders Basic and diluted earnings per share increase 20%
The Group’s net income attributable to shareholders increased € in millions
Basic earnings per share increased 20% to € 3.25 in 2008
16% to € 642 million in 2008 from € 551 million in 2007. This versus € 2.71 in 2007. Basic earnings per share increased
development was in line with Management’s initial expectation 2004 314 at a higher rate than the Group’s net income attributable
of net income growth of at least 15%. The Group’s higher oper- to shareholders due to a decrease in the number of shares
2005 383
ating profit, a lower tax rate and lower minority interests con- outstanding. The weighted average number of shares used
tributed to this development. The Group’s tax rate decreased 2006 1) 483 in the calculation of basic earnings per share decreased
3.0 percentage points to 28.8% in 2008 (2007: 31.8%) mainly 2007 551 to 197,562,346 in 2008 (2007 average: 203,594,975) due to
due to a more favourable regional earnings mix throughout the the share buyback programme initiated in January 2008
2008 642
Group as well as one-time tax benefits in the fourth quarter of see Our Share, p. 038 . Diluted earnings per share in 2008
2008 see Note 28, p. 189. increased 20% to € 3.07 from € 2.57 in the prior year. The
1) Including Reebok business segment from February 1, 2006 onwards. Including
Greg Norman apparel business from February 1, 2006 to November 30, 2006. weighted average number of shares used in the calculation
Minority interests decline 39% of diluted earnings per share was 213,333,203 (2007 average:
The Group’s minority interests decreased 39% to € 2 million in 219,467,177). The dilutive effect largely results from approxi-
2008 from € 4 million in 2007. The decline was primarily due to Net income attributable to shareholders by quarter mately sixteen million additional potential shares that could
lower profit at Reebok’s subsidiary in Spain. be created in relation to our outstanding convertible bond,
€ in millions
for which conversion criteria were first met at the end of the
fourth quarter of 2004.
Q1 2007 128
Q1 2008 169
Q2 2007 104
Q2 2008 116
Q3 2007 298
Q3 2008 302
Q4 2007 21
Q4 2008 54
090 Group Management Report – Our Financial Year Group Business Performance — Balance Sheet and Cash Flow Statement
Other current assets up 49% Total assets Accounts payable grow 43%
Other current assets increased 49% to € 789 million at the € in millions
Accounts payable increased 43% to € 1.218 billion at the end
end of 2008 from € 529 million in 2007. This development of 2008 versus € 849 million in 2007. On a currency-neutral
was mainly due to higher fair values of financial instruments 2004 1) 4,434 basis, accounts payable were up 37%. This development was
see Note 9, p. 168 . mainly a result of a higher volume of production and product
2005 5,750
shipments towards the end of the year in anticipation of future
Fixed assets increase 9% 2006 2) 8,379 price increases as well as potential regulatory changes in
Fixed assets increased 9% to € 4.074 billion at the end of 2008 2007 8,325 Latin America see Risk and Opportunity Report, p. 107. The new
versus € 3.726 billion in 2007. This was mainly the result of Reebok companies in Latin America as well as the consoli-
2008 9,533
continued own-retail expansion, investment into the Group’s dation of the Ashworth business acquired in November also
IT infrastructure, the transfer of assets held-for-sale to contributed to the increase.
1) Restated due to application of amendment to IAS 19.
fixed assets as well as the acquisition of Ashworth, Inc. and 2) Including Reebok business segment from February 1, 2006 onwards.
Textronics, Inc. Additions of € 378 million were partly offset Other current liabilities increase 11%
by depreciation and amortisation of € 234 million as well as Other current liabilities increased 11% to € 295 million at the
disposals in an amount of € 41 million. Currency translation Inventories end of 2008 from € 266 million in 2007, primarily as a result
effects on fixed assets denominated in currencies other than of increases in tax liabilities other than income taxes see
€ in millions
the euro had a positive effect of € 120 million. Note 17, p. 173 .
2004 1,155
Assets held-for-sale decrease 60% Other non-current liabilities decrease 23%
At the end of 2008, assets held-for-sale decreased 60% to 2005 1,230 Other non-current liabilities decreased 23% to € 52 million at
€ 31 million (2007: € 80 million). In the second quarter of 2006 1) 1,607 the end of 2008 from € 69 million in 2007, primarily as a result
2008, land and buildings in Herzogenaurach, Germany, which of a decrease in the fair value of non-current forward contracts
2007 1,629
are no longer in the scope of a sale, were transferred to fixed see Note 19, p. 175 .
assets. At the end of 2008, assets held-for-sale mainly related 2008 1,995
to warehouses for sale in the UK and in the USA, property in Equity grows due to increase in net income
Herzogenaurach and assets in connection with the planned 1) Including Reebok business segment from February 1, 2006 onwards. Shareholders’ equity rose 12% to € 3.386 billion at the end of
divestiture of Gekko Brands, LLC acquired with Ashworth, Inc. 2008 versus € 3.023 billion in 2007. The net income gener-
see Note 3, p. 163 . ated during the period more than offset the buyback of adidas
Receivables AG shares. Currency translation effects and increases in the
Other non-current assets increase 25% € in millions fair value of forward contracts also positively impacted this
Other non-current assets increased by 25% to € 180 million at development see Note 21, p. 176 .
the end of 2008 from € 147 million in 2007, mainly driven by an 2004 1,046
increase in the fair value of financial instruments see Note 14, 2005 965 Expenses related to off-balance sheet items
p. 170 . Our most important off-balance sheet assets are operating
2006 1) 1,415
leases, which are related to retail stores, offices, warehouses
2007 1,459 and equipment. The Group has entered into various operating
2008 1,624
leases as opposed to property acquisitions to reduce exposure
to property value fluctuations. Rent expenses increased 25%
1) Including Reebok business segment from February 1, 2006 onwards.
to € 422 million in 2008 from € 337 million in the prior year,
mainly due to the continued expansion of the adidas Group’s
own-retail activities see Note 22, p. 181.
(106)
295
244
092 Group Management Report – Our Financial Year Group Business Performance — Balance Sheet and Cash Flow Statement — Treasury
Treasury Centralised treasury function Total credit facilities
In accordance with our Group’s Treasury Policy, more than € in millions
90% of our worldwide credit lines are managed by the Group
Group financing policy Treasury department. Portions of those lines are allocated to
2008 2007
The major goal of our financing policy is to minimise the the Group’s subsidiaries and backed by parental guarantees.
Group’s financial expenses while ensuring sufficient liquidity As a result of this centralised liquidity management, the Group
reserves at all times to meet the Group’s payment commit- is well positioned to allocate resources efficiently throughout
ments. The operating activities of our Group segments and the organisation. The Group’s debt is generally unsecured and
the resulting cash inflows represent the Group’s main source includes standard financial covenants, which are reviewed on
Short-term lines 2,722 2,314
of liquidity. Liquidity is planned on a multi-year financial and a quarterly basis. We maintain good relations with numerous
liquidity plan on a rolling monthly basis. This comprises all partner banks, thereby avoiding a strong dependency on any
consolidated Group companies. Our in-house bank concept single institution. Banking partners of the Group and our sub-
takes advantage of the surplus funds of individual Group com- sidiaries are required to have at least a BBB+ long-term invest-
Medium-term committed lines 2,000 2,000
panies to cover the financial requirements of others, reduc- ment grade rating by Standard & Poor’s or an equivalent rating
ing external financing requirements and optimising our net by another leading rating agency. Only in exceptional cases
interest expenses. By settling intercompany transactions via are Group companies authorised to work with banks with a
intercompany financial accounts, we are able to reduce exter- lower rating see Risk and Opportunity Report, p. 107. To optimise Private placements 1,432 1,564
nal bank account transactions and thus bank charges. Effective the Group’s cash position and ensure optimal allocation of
management of our currency exposure as well as ongoing liquid financial resources, subsidiaries are required to transfer Convertible bond 393 384
interest rate optimisation are additional goals of our Group excess cash to the Group’s headquarters.
Treasury department. Total 6,547 6,262
Long-term financial flexibility ensured
Treasury system and responsibilities The adidas Group’s long-term flexibility is ensured by unuti-
Our Group’s Treasury Policy governs all treasury-related lised credit facilities in an amount of € 3.9 billion at the end of Remaining time to maturity of available facilities
issues, including banking policy and approval of bank relation- 2008 (2007: € 4.1 billion). These include a € 2.0 billion com- € in millions
ships, global financing arrangements and liquidity /asset man- mitted multi-year syndicated loan (2007: € 2.0 billion) of which
agement, currency and interest risk management as well as € 1.8 billion was not utilised at year-end as well as bilateral
2008 2007
the management of intercompany cash flows. Responsibilities credit lines at different banks in an amount of € 2.1 billion
are arranged in a three-tiered approach: (2007: € 2.1 billion). We monitor the ongoing need for available
credit lines based on the current level of debt as well as future
— The Treasury Committee consists of members of the financing requirements.
Executive Board and other senior executives who decide on 2,500
the Group’s Treasury Policy and provide strategic guidance < 1 year 3,519
for managing treasury-related topics. The Treasury Committee
approves all major changes to our Treasury Policy.
967
— The Group Treasury department is responsible for specific 1 to 3 years 462
094 Group Management Report – Our Financial Year Group Business Performance — Treasury
Interest rate development 1) Net debt position increased by € 423 million Financial leverage
in % per annum
Net borrowings at December 31, 2008 amounted to € 2.189 bil- in %
lion, which represents an increase of € 423 million, or 24%,
2004 3.4 versus € 1.766 billion in the prior year. As a result, our original 2004 1) 43.1
target of net debt to be at or slightly below the 2007 level was
2005 4.0 2005 (20.5)
not achieved. During 2008, we utilised cash for a share buyback
2006 4.8 programme in an amount of € 409 million which contributed to 2006 2) 78.9
2007 5.3 the increase in net debt. Higher working capital requirements 2007 58.4
also contributed to this development. In addition, negative
2008 5.2 2008 64.6
currency effects contributed € 93 million to the net borrowings
development. Consequently, the Group’s financial leverage
1) Weighted average interest rate of gross borrowings. 1) Restated due to application of IAS 32 /IAS 39 and amendment to IAS 19.
increased to 64.6% at the end of 2008 versus 58.4% in the prior 2) Including Reebok business segment from February 1, 2006 onwards.
year. On a net debt basis, the utilisation of the credit facilities
available to the Group at the end of 2008 was 33% versus 28%
Net cash /(Net borrowings)
in the prior year. Financing structure
€ in millions
€ in millions
Currency management further optimised
2004 1) (665) Due to the Group’s global activity, currency management
2008 2007
2005 551 is a key focus of the Group’s Treasury department. Hedging
US dollars is the central pillar of our programme. This is a
2006 2) (2,231) Total cash and short-term financial assets 384 381
direct result of our Asian-dominated sourcing, which is largely
2007 (1,766) Bank borrowings 605 198
denominated in US dollars see Global Operations, p. 064 . In
Commercial paper 143 0
2008 (2,189) 2008, the Treasury department managed a net deficit of around
Private placements 1,432 1,564
US $ 1.9 billion against the euro. This represents an increase Convertible bond 393 384
1) Restated due to application of amendment to IAS 39. of approximately US $ 0.4 billion from around US $ 1.5 billion Gross total borrowings 2,573 2,146
2) Including Reebok business segment from February 1, 2006 onwards. in the prior year, mainly as a result of our increased sourc- Net borrowings 1) 2,189 1,766
ing needs. As outlined in our Group’s Treasury Policy, we have 1) Rounding differences may arise in totals.
established a rolling 12- to 24-month hedging system, under
1)
Net borrowings by quarter which the vast majority of the anticipated seasonal hedging
€ in millions volume is secured six months prior to the start of a season. Short-term credit lines
As a result, we have almost completed our anticipated hedg-
Q1 2007 2,519 ing needs for 2009 at rates similar to those of 2008 and we € in millions
Q1 2008 2,073 have already started to hedge our exposure for 2010. The
use or combination of different hedging instruments, such as 2008 2007
Q2 2007 2,395 currency options, swaps and forward contracts, protects us
Q2 2008 2,260 against unfavourable currency movements, while retaining
the potential to benefit from future favourable exchange rate
Q3 2007 2,201
developments see Risk and Opportunity Report, p. 107.
Q3 2008 2,593 Committed 1,137
1) At end of period.
096 Group Management Report – Our Financial Year Group Business Performance — Disclosures pursuant to § 315 Section 4 of the German Commercial Code and Explanatory Report
Subject to Supervisory Board approval, shareholders’ subscrip- — Share Buyback — They may be offered and sold, subject to Supervisory
tion rights can be excluded in certain cases see Note 21, p. 176 . The authorisations of the company to repurchase adidas Board approval, as consideration for the acquisition of
AG shares arise from §§ 71 et seq. AktG as well as the industrial property rights or intangible property rights
— Contingent Capital authorisations granted by the Annual General Meetings on or for the acquisition of licences relating to such rights,
— The Executive Board has at its disposal a contingent May 10, 2007 and May 8, 2008. also through subsidiaries.
capital amounting to no more than € 1,294,748 (Contin- — By resolution dated May 10, 2007, the company was — They may be used to meet subscription or conver-
gent Capital 1999 /I) for the issuance of shares to fulfil authorised, in accordance with § 71 section 1 number sion rights arising from bonds with warrants and /or
stock options granted to beneficiaries within the Man- 8 AktG, to repurchase adidas AG shares of up to 10% of convertible bonds issued or to be issued by adidas AG
agement Share Option Plan (MSOP) in the years 1999 the stock capital of adidas AG until November 9, 2008 for or a direct or indirect subsidiary, in accordance with the
to 2003. Shares are only issued within the scope of the any lawful purpose within the legal frame. The Executive authorisations granted by the Annual General Meetings
authorisation granted by the Annual General Meeting on Board utilised this authorisation to initiate a share buy- held on May 8, 2003 and May 11, 2006.
May 20, 1999, as amended on May 8, 2002, May 13, 2004 back programme carried out between January 30, 2008 — They may be used to meet the company’s obligations
and May 11, 2006. Taking into account all forfeited stock and May 2, 2008. The company repurchased 5,511,023 arising from the Management Share Option Plan 1999
options, up to 63,200 shares (as at December 31, 2008) adidas AG shares during this period and, in accordance (MSOP).
may still be issued through exercise of the remaining with the authorisation granted by the Annual General — They may be cancelled without a further resolution of
15,800 share options. The issuance of new share options Meeting and with Supervisory Board approval, cancelled the Annual General Meeting being required.
based on the above-mentioned authorisation is no these shares on July 2, 2008, thus reducing the stock — They may be assigned to members of the Executive
longer possible. capital. Board as compensation by way of a stock bonus subject
— The Executive Board has at its disposal a contingent The Annual General Meeting on May 8, 2008 can- to the provision that resale by the Executive Board shall
capital amounting to no more than € 35,998,040 (Con- celled this authorisation and replaced it with a new only be permitted following a lock-up period of at least
tingent Capital 2003 /II) for the issuance of shares to authorisation. two years from the date of assignment. Responsibility in
holders of bonds issued by adidas International Finance — In accordance with the authorisation granted on May 8, this case lies with the Supervisory Board.
B.V., the Netherlands, and guaranteed by adidas AG. The 2008, the Executive Board is authorised until Novem-
shares will, however, only be issued to the extent that ber 7, 2009 to repurchase adidas AG shares of up to an In case of a sale of shares for the above-mentioned pur-
bondholders exercise their conversion rights. In the event amount totalling 10% of the stock capital at the date of poses, shareholders’ subscription rights are excluded.
of conversion rights being exercised, the total number of the resolution for any lawful purpose within the legal If any of the transactions carried out on the basis of this
shares to be issued in this case to bondholders amounts frame. The authorisation may be used by adidas AG but authorisation require approval by the Supervisory Board,
to 15,684,315 (as at December 31, 2008). also by its subsidiaries or by third parties on account of it may assign this responsibility to one of its committees.
— By resolution of the Annual General Meeting held on the company or its subsidiaries.
May 11, 2006, the Executive Board was also authorised The Executive Board partially utilised this authorisation
to issue bonds with warrants and /or convertible bonds adidas AG shares repurchased based on this authorisation for the share buyback programme initiated on January 30,
by the company or affiliated companies once or several may in particular be used as follows: 2008, and continued on May 21, 2008 after a temporary
times in the total amount of up to € 1.5 billion for a — They may be sold, subject to Supervisory Board interruption. Pursuant to the authorisation granted by the
duration of up to 30 years and to accept guarantee of approval, via the stock exchange or through an offer Annual General Meeting, adidas AG repurchased 4,671,225
such bonds issued by affiliated companies. The Execu- made to all shareholders for cash or through sale at a shares between May 21, 2008 and October 22, 2008 and
tive Board is authorised to grant to bondholders or bond price not significantly below the stock market price of cancelled these shares on December 15, 2008, thus reduc-
creditors subscription or conversion rights relating to shares with the same features. ing the stock capital.
no more than a total of 20,000,000 shares in compliance — They may be used, subject to Supervisory Board
with the corresponding conditions of the bonds. For this approval, for the purpose of acquiring companies, parts
purpose, the stock capital was conditionally increased of companies or participations in companies.
by up to € 20,000,000 (Contingent Capital 2006). The
Executive Board is authorised to exclude shareholders’
subscription rights to bonds, subject to approval by the
Supervisory Board, provided that the issue price of the
bonds with warrants and /or convertible bonds is not
significantly below the market value of these bonds. This
authorisation has not been utilised thus far.
098 Group Management Report – Our Financial Year Group Business Performance — Disclosures pursuant to § 315 Section 4 of the German Commercial Code and Explanatory Report — Business Performance by Segment — adidas Business Performance
adidas Business Performance adidas at a glance Acquisition of Textronics, Inc.
In September 2008, the adidas segment acquired US-based
In 2008, sales growth in the adidas segment € in millions
Textronics, Inc. Textronics is a specialist in the development of
exceeded Management’s initial expectations. 2008 2007 Change
wearable sensors for use in fitness monitoring. The acquisition
Profitability developed in line with expectations. did not have a material impact on adidas results in 2008.
Currency-neutral sales in the adidas segment Net sales 7,821 7,113 10%
Gross profit 3,802 3,370 13% Currency-neutral segment sales grow 14%
increased 14%. In euro terms, segment sales Gross margin 48.6% 47.4% 1.2pp In 2008, revenues for the adidas segment grew 14% on a
grew 10% to € 7.821 billion in 2008 from Operating profit 1,098 920 19% currency-neutral basis. This development clearly exceeded
Operating margin 14.0% 12.9% 1.1pp Management’s initial expectation of a high-single-digit sales
€ 7.113 billion in 2007. Gross margin increased increase. Currency-neutral footwear, apparel and hardware
1.2 percentage points to a record annual level of revenues all increased at double-digit rates. Currency trans-
48.6% (2007: 47.4%). This was mainly driven by adidas net sales by quarter lation effects negatively impacted segment revenues in euro
terms. adidas sales grew 10% in euro terms to € 7.821 billion
an improving regional mix, further own-retail € in millions in 2008 from € 7.113 billion in 2007.
expansion and a more favourable product mix.
Q1 2007 1,819
Gross profit grew 13% to € 3.802 billion in 2008 Currency-neutral adidas sales grow at double-digit
Q1 2008 1,968
rates in nearly all regions
from € 3.370 billion in 2007. As a result of the In 2008, currency-neutral sales for the adidas segment grew
Q2 2007 1,635
positive gross margin development and stable Q2 2008 1,818 at double-digit rates in all regions except North America,
net other operating expenses and income where sales declined. Revenues in Europe grew 13% on a
Q3 2007 2,012 currency-neutral basis, mainly driven by double-digit increases
as a percentage of sales, operating margin Q3 2008 2,218 in emerging markets. Currency-neutral adidas sales in North
increased 1.1 percentage points to 14.0% (2007: America decreased 3% as a result of the difficult retail environ-
Q4 2007 1,648
12.9%). Operating profit increased 19% to ment in the USA. Sales in Asia improved 24% on a currency-
Q4 2008 1,817 neutral basis, due to double-digit increases in nearly all major
€ 1.098 billion in 2008 versus € 920 million markets, in particular China. In Latin America, currency-
in 2007. neutral sales grew 21%, driven by double-digit increases in all
markets.
2008 adidas net sales by division
Currency translation effects negatively impacted sales in euro
terms in all regions. Sales in Europe grew 10% in euro terms
Sport Style 20% to € 3.879 billion in 2008 from € 3.526 billion in 2007. Rev-
enues in North America decreased 10% to € 1.149 billion in
2008 from € 1.275 billion in 2007. Sales in Asia increased 23%
to € 2.090 billion in 2008 from € 1.703 billion in 2007, and rev-
enues in Latin America improved 16% to € 660 million in 2008
versus € 568 million in the prior year.
Sport
Performance 80%
100 Group Management Report – Our Financial Year Business Performance by Segment — adidas Business Performance
adidas own-retail stores Net other operating expenses and income stable adidas gross margin by quarter
Net other operating expenses and income as a percent- in %
age of sales in the adidas segment remained stable at 35.6%
(2007: 35.6%). Despite higher marketing expenses related to Q1 2007 47.2
2008 2007
the UEFA EURO 2008™ and the Beijing 2008 Olympic Games, Q1 2008 49.0
marketing working budget as a percentage of net sales
decreased slightly compared to the prior year as a result of the Q2 2007 46.1
segment’s strong sales growth. In 2008, the adidas segment Q2 2008 48.3
had higher operating overhead costs as a percentage of sales,
Sport Performance Concept Stores 652 Q3 2007 49.3
mainly due to higher sales expenses in emerging markets
Q3 2008 49.8
related to sales growth. In euro terms, net other operating
459 expenses and income grew 10% to € 2.784 billion in 2008 from Q4 2007 46.4
€ 2.530 billion in 2007. Q4 2008 47.0
Originals Concept Stores 140
Sport Style Concept Stores 4
83
Operating margin increases to 14.0%
In 2008, the adidas operating margin increased 1.1 percentage
Factory Outlets 381 317
points to 14.0% (2007: 12.9%). This development was in line
adidas operating profit by quarter
with Management’s initial expectation of an operating margin
Concession Corners 150 142
Internet 5 2 improvement. The increase results from gross margin expan- € in millions
sion and stable net other operating expenses and income as
Total 1,332 1,003 Q1 2007 270
a percentage of sales. Operating profit for the adidas segment
increased 19% to € 1.098 billion in 2008 versus € 920 million Q1 2008 336
during the same period in the prior year. Q2 2007 191
Q2 2008 175
Q3 2007 395
Q3 2008 439
Q4 2007 64
Q4 2008 147
102 Group Management Report – Our Financial Year Business Performance by Segment — Reebok Business Performance
Currency translation effects negatively impacted sales in 2008 Reebok net sales by division Currency-neutral own-retail sales grow 17%
euro terms in all regions. In euro terms, segment sales in In 2008, Reebok own-retail sales grew 17% on a currency-
Europe decreased 8% to € 691 million in 2008 from € 748 mil- neutral basis. In euro terms, revenues increased 8% to
lion in 2007. In North America, revenues declined 22% to Reebok- € 379 million from € 350 million in 2007. The increase was
€ 964 million in 2008 from € 1.231 billion in 2007. Sales in Asia CCM Hockey 9% largely driven by new store openings in emerging markets,
decreased 1% to € 267 million in 2008 (2007: € 269 million), especially Russia. Reebok own-retail activities made up 18% of
Reebok 80%
and in Latin America revenues increased 170% to € 226 million Reebok segment sales in 2008, up from 15% in the prior year.
in 2008 (2007: € 84 million). The share of own-retail activities as a percentage of brand
sales at Rockport was significantly above the segment average.
Currency-neutral sales of brand Reebok stable During the year, the number of Reebok and Rockport stores
Rockport 11%
Brand Reebok sales were almost unchanged compared to the increased by 123 to 647 (2007: 524). The store base at the end
prior year on a currency-neutral basis. An increase in the run- of 2008 comprised 253 concept stores and 327 factory outlets.
ning category was offset by declines in lifestyle and in most
major sports categories. In euro terms, sales decreased 6% to Reebok segment gross margin declines 1.7 percentage points
€ 1.717 billion (2007: € 1.831 billion). The gross margin of the Reebok segment decreased 1.7 per-
2008 Reebok net sales by region centage points to 37.0% in 2008 from 38.7% in 2007. This
Currency-neutral sales of Reebok-CCM Hockey down 6% development was below Management’s initial expectation of a
Sales of Reebok-CCM Hockey decreased 6% on a currency- gross margin increase. The segment gross margin was nega-
neutral basis in 2008. This was due to the decline in the Latin America 11%
tively affected by clearance initiatives in particular in the USA
licensed jersey business compared to the prior year. In euro North America 45% and the UK in the second half of the year. Reebok gross profit
terms, sales decreased 11% to € 188 million in 2008 versus decreased 12% to € 795 million in 2008 versus € 902 million in
€ 210 million in the prior year. 2007.
104 Group Management Report – Our Financial Year Business Performance by Segment — Reebok Business Performance — TaylorMade-adidas Golf Business Performance
TaylorMade-adidas Golf Business TaylorMade-adidas Golf at a glance Maxfli divestiture impacts reported results
Performance € in millions
Compared to the prior year, financial results of the TaylorMade-
adidas Golf segment in 2008 do not include the results of the
In 2008, sales growth in the TaylorMade-adidas 2008 2007 Change
Maxfli business. This reflects the divestiture of the Maxfli brand
Golf segment exceeded Management’s initial on February 11, 2008. Maxfli was divested to improve the focus
Net sales 812 804 1% of the segment’s golf ball business under the TaylorMade
expectations. Profitability developed in line with brand. The operating profit of the TaylorMade-adidas Golf
Gross profit 359 360 (0%)
expectations. TaylorMade-adidas Golf revenues Gross margin 44.3% 44.7% (0.5pp) segment was positively impacted by a one-time book gain of
increased 7% on a currency-neutral basis. In Operating profit 78 65 20% € 5 million.
Operating margin 9.6% 8.1% 1.5pp
euro terms, segment sales increased 1% to Acquisition of Ashworth has no significant impact
€ 812 million in 2008 from € 804 million in on sales in 2008
2007. The segment’s gross margin decreased TaylorMade-adidas Golf net sales by quarter In November 2008, the TaylorMade-adidas Golf segment
acquired Ashworth, Inc., a leader in cotton casual golf apparel.
0.5 percentage points to 44.3% (2007: 44.7%). € in millions The Ashworth consolidation did not have a significant impact
This was mainly a result of lower margins in on the segment’s sales. This transaction positively impacted
Q1 2007 180
metalwoods. Gross profit remained almost the operating profit of the TaylorMade-adidas Golf segment
Q1 2008 191
due to a one-time book gain of € 21 million. However, this
stable at € 359 million (2007: € 360 million). was partially offset by restructuring costs and other one-time
Q2 2007 239
The segment’s operating margin increased Q2 2008 226 expenses of € 7 million.
1.5 percentage points to 9.6% (2007: 8.1%). This
Q3 2007 190 Currency-neutral sales increase 7%
was due to lower net other operating expenses Q3 2008 197 In 2008, currency-neutral sales at TaylorMade-adidas Golf
and income as a percentage of sales which increased 7%. This development exceeded Management’s
Q4 2007 195
more than offset the decrease in gross margin. initial expectations of mid-single-digit growth. Double-digit
Q4 2008 198 growth in adidas Golf and categories such as golf balls and
As a result, operating profit increased 20% to putters more than offset a decline in metalwoods. Currency
€ 78 million from € 65 million in 2007. translation effects negatively impacted segment revenues
in euro terms. Segment sales in euro terms increased 1% to
2008 TaylorMade-adidas Golf net sales by product € 812 million in 2008 from € 804 million in 2007.
Apparel 20%
Other
hardware 1) 33%
1) Includes irons, putters, golf balls, golf bags, gloves and other accessories.
Q1 2007 (1)
Q1 2008 23
Q2 2007 27
Q2 2008 19
Q3 2007 15
Q3 2008 11
Q4 2007 24
Q4 2008 24
106 Group Management Report – Our Financial Year Business Performance by Segment — TaylorMade-adidas Golf Business Performance — Risk and Opportunity Report
Risk and Opportunity Report Risk and opportunity management system adidas Group risk and opportunity management system
To facilitate effective management, we have implemented an
The adidas Group continuously explores and integrated management system which focuses on the iden-
develops opportunities to sustain and maximise tification, assessment, treatment, controlling and reporting
of risks and opportunities. The key objective of this system Supervisory and Executive Boards
earnings and also to drive long-term increases
is to protect and further grow shareholder value through
in shareholder value. In doing so, we acknowl- an opportunity-focused, but risk-aware decision-making
edge that it is necessary to take certain risks to framework.
maximise business opportunities. Our risk and
We believe that risk and opportunity management is optimised Central risk management Brand and headquarter functions
opportunity management principles provide the when risks, risk-compensating measures and opportuni-
framework for our Group to conduct business ties are identified and assessed where they arise, in conjunc-
Reporting
108 Group Management Report – Our Financial Year Risk and Opportunity Report
Corporate risk overview External and Industry Risks Consumer demand risks
Failure to anticipate and respond to changes in consumer
demand for sporting goods products is one of the most serious
Macroeconomic risks threats to our industry. Consumer demand changes can be
Potential
Probability financial Growth of the sporting goods industry is influenced by con- sudden and unexpected. Because industry product procure-
of occurrence impact
sumer confidence and consumer spending. Abrupt economic ment cycles average 12 to 18 months, the Group faces a risk of
downturns, in particular in regions where the Group is highly short-term revenue loss in cases where it is unable to respond
External and industry risks
represented, therefore pose a significant short-term risk to quickly to such changes. Even more critical, however, is the
Macroeconomic risks High High
sales development. To mitigate this risk, the Group strives risk of continuously overlooking a new consumer trend or fail-
Consumer demand risks Medium Medium
Industry consolidation risks High Medium
to balance sales across key global regions and also between ing to acknowledge its potential magnitude over a sustained
Political and regulatory risks Low Medium developed and emerging markets. In addition, a core ele- period of time.
Legal risks Low Medium ment of our performance positioning is the utilisation of an
Risk from product counterfeiting and imitation High Low extensive global event and partnership portfolio where demand To mitigate this risk, continually identifying and responding to
Social and environmental risks Low Low is more predictable and less sensitive to macroeconomic consumer demand shifts as early as possible is a key respon-
Natural risks Low Low influence. sibility of our brands. In this respect, we utilise extensive pri-
mary and secondary research tools as outlined in our risk and
Strategic & operational risks In 2009, the Group expects global economic growth to slow opportunity identification process.
Portfolio integration risks Low Low considerably. North America and Europe are expected to
Risks from loss of brand image Medium Medium remain in recession see Subsequent Events and Outlook, p. 120. As a leader in our industry, our core brand strategies continue
Own-retail risks Medium Medium Economic expansion in emerging markets, including China, to be focused on influencing rather than reacting to the chang-
Risks from rising input costs Medium Medium Russia and India, is expected to continue, albeit at a more ing consumer environment. We invest significant resources in
Supplier default risks Low Low moderate rate compared to prior years. These markets have research and development to innovate and bring fresh new
Product quality risks Low Low overtaken North America and Western Europe as the largest technologies and designs to market see Research and Develop-
Customer risks Medium Medium
contributors to Group revenue growth. As a result of the ment, p. 074 . In addition, we also seek to enhance consumer
Risk from loss of key promotion partnerships Medium Low
current global macroeconomic uncertainty, we now assess the demand for our brands and brand initiatives through extensive
Product design and development risks Low High
likelihood that adverse macroeconomic events could impact marketing, product and brand communication programmes.
Personnel risks Low Medium
our business as high. We also now assess the potential finan- And we continue to focus on supply chain improvements to
Risks from non-compliance Low Medium
IT risks Low High
cial impact of such events as high. speed up creation-to-shelf timelines see Global Operations,
p. 064 . In 2009, the adidas Group will continue to refine the
At the end of 2008, nearly all apparel-specific safeguard We continue to regard the likelihood of sustained counterfeiting
measures against China have expired based on the World and imitation as high in the short and medium term. However,
Trade Organization (WTO) accession agreements. However, we believe we have adequate costs budgeted to support our
due to the current general economic climate, there are ten- ongoing efforts to successfully combat counterfeiting and
dencies amongst various governments to seek protection imitation. We continue to assess the potential risk of counter-
against imports by applying trade defence instruments, such feiting and imitation to negatively impact our forecasted
financial contribution as low.
110 Group Management Report – Our Financial Year Risk and Opportunity Report
Social and environmental risks Strategic and Operational Risks In 2008, we launched several Reebok product technologies and
We have a continuing responsibility to our workers, suppliers a new global brand campaign to improve the overall consumer
and the environment. Malpractice in these areas, in particular experience for the Reebok brand see Reebok Strategy, p. 052 .
human rights violations and dubious employment practices, Portfolio integration risks Nevertheless, given the difficult economic situation in North
can have a significant impact on the reputation and operational The adidas Group is exposed to risks related to the integration America and Europe, and the possibility that our revitalisa-
efficiency of our Group and our suppliers. To limit this risk, of newly acquired businesses. In our ongoing initiatives to tion initiatives fail to improve brand image in the short term,
we have established workplace standards to which suppliers integrate businesses, we face a risk of overestimating potential we view the likelihood of a further reduction in brand image as
must conform before and during business relationships with revenue and cost synergies as well as organisational execution medium. This could potentially have a high financial impact on
the Group see Sustainability, p. 067. Internal inspections of risks. Organisational execution risks relate, for example, to the the sales and profitability of the Reebok segment.
supplier factories verified by extensive independent audits are standardisation of functional business processes across the
conducted regularly. In the event of non-compliance with these different brands and harmonisation of the Group’s IT systems. Aggregating these risks, we continue to believe that in the
standards, we develop joint action plans and set deadlines for To mitigate these risks, we implement dedicated integration medium term brand image risk for the Group has a medium
compliance and further improvement. When these deadlines teams to oversee our integration activities. likelihood of occurrence and also a medium potential financial
are not met, business relations are terminated see Sustain- impact on our Group.
ability, p. 067, and www. adidas-Group.com /sustainability. In 2008, the adidas Group acquired several companies, such
as Textronics, Inc. and Ashworth, Inc. While these integra- Own-retail risks
We expect to further strengthen our supplier monitoring pro- tions were relatively small, the adidas Group benefited from New adidas, Reebok and Rockport own-retail stores require
gramme in 2009. As a result, we continue to regard the risk of past experience and strong integration processes. We there- considerable up-front investment in furniture and fittings as
social and environmental malpractice as likely in only isolated fore believe there continues to be a low likelihood of portfolio well as ongoing maintenance. In addition, own-retail activities
cases and we believe the potential financial impact remains integration risk occurrence. And now that most of the syner- often require longer-term lease or rent commitments. Own
low. gies related to the Reebok integration have been realised, we retail also employs significantly more personnel in relation
regard the potential financial impact of these risks as low. to net sales than our wholesale business. The higher portion
Natural risks of fixed costs compared to our wholesale business implies a
The adidas Group is exposed to external risks such as natural Risks from loss of brand image larger profitability impact in cases of significant sales declines.
disasters, epidemics, fire and accidents. Further, physical Maintaining and enhancing brand image and reputation The Group reduces this risk by only entering into lease con-
damage to our own or our suppliers’ premises, production through the creation of strong brand identities is crucial for tracts with a duration of less than ten years. Store performance
units, warehouses and stock in transit can lead to property sustaining and driving revenue and profit growth. It is also is measured by a retail scorecard consisting of nine quantita-
damage and business interruption. These risks are mitigated an important credential as we extend our brands into new tive key performance indicators. All shops are ranked by their
by ample loss prevention measures such as working with categories and regions. The adidas Group faces consider- weighted average score. Underperforming stores are restruc-
reliable suppliers and logistics providers who guarantee high able risk if we are unable to uphold high levels of consumer tured or closed as appropriate.
safety standards and disaster recovery plans. In addition to awareness, affiliation and purchase intent for our brands.
the considerable insurance coverage we have secured, the To mitigate this risk, we have defined clear mission state- The current macroeconomic situation and its impact on con-
Group has also implemented contingency plans to minimise ments, values and goals for all our brands. These form the sumer spending increase the risk of lower performance of
potential negative effects. foundation of our product and brand communication strate- our retail stores. We therefore believe the likelihood of major
gies. We also continually refine our product offering to meet own-retail underperformance remains medium. Due to the
Our overall assessment of this risk is unchanged versus the shifts in consumer demand and to contemporise our offering strong growth of own-retail activities, we continue to assess
prior year. As a result, we believe the likelihood of natural risks to respond to current trends. Central to all our brand image the potential financial impact from own-retail underperfor-
is low and expect only minor financial loss after insurance initiatives is ensuring clear and consistent messaging to our mance, which may also involve impairment charges and store
compensation should natural risks materialise. targeted consumer audience, in particular at point-of-sale. closures, as medium.
Strong brand momentum at adidas and TaylorMade-adidas
Golf, as evidenced in improving market research results, gives
us confidence that brand image risk in both these segments
remains low.
112 Group Management Report – Our Financial Year Risk and Opportunity Report
Risks from loss of key event or promotion partnerships Product design and development risks Risks from non-compliance
Event and promotion partnerships play an important role Innovative and attractive products generate strong sales and – We face the risk that our employees breach rules and stan-
in building brand image and generating sales of licensed more importantly – create a halo effect for other products. The dards that guide appropriate and responsible business behav-
products. The adidas Group faces the risk of either losing speed with which new product technologies and fresh designs iour. In order to successfully manage this risk, the Group Policy
key partnerships or having to accept unfavourable terms due are brought to market is decisive for maintaining competitive Manual was launched at the end of 2006 to provide the frame-
to intensified competition for attractive contracts. During advantage. In 2008, all brands generated the majority of their work for basic work procedures and processes. It also includes
2008, for example, the French Football Federation and adidas sales with products which had been brought to market over a Code of Conduct which stipulates that every employee shall
decided not to renew their promotion partnership. the last 12 to 18 months see Research and Development, p. 074 . act ethically in compliance with the laws and regulations of
If the adidas Group failed to maintain a strong pipeline of the legal systems where they conduct Group business. During
To mitigate these inherent risks, we regularly seek to extend new innovative products over a sustained period of time, we 2008, all of our employees were trained on a Code of Conduct
our most important partnership agreements before contract would risk a significant sales decline. We continue to invest in e-learning tool as part of our Global Compliance Programme.
expiry. For example, in 2008 adidas extended contracts with increasing our innovational and design strength. To ensure we All new employees are also trained on this tool see Corporate
two of the world’s most recognised teams: AC Milan and the All can quickly adapt to changing consumer preferences, we focus Governance Report, p. 026 . Participation is mandatory for all
Blacks see adidas Strategy, p. 048 . on streamlining research and development processes to speed employees.
up the time to market.
We also regularly include change-of-control clauses as well We continue to regard the likelihood of grave misconduct as
as non-cash compensation components in contracts to avoid We continue to assess the occurrence probability of this risk, low. Should they materialise, these risks could have a medium
the risk that negotiations are reduced solely to price. In addi- which could potentially have a significant financial impact, as financial impact on the Group.
tion, we follow a strategy of broadening the Group’s portfolio of low.
premium partnerships in order to reduce our reliance on single IT risks
affiliations. Personnel risks Most of our business processes rely on IT systems, such as
The adidas Group’s future success is highly dependent on our product marketing, order management, warehouse manage-
Due to increasing competition for promotion partners wit- employees and their talents. Loss of key personnel in strategic ment, invoice processing, customer support or finance report-
nessed over recent years, we continue to believe there is a positions, to competitors or others, is therefore a significant ing. A Group-wide breakdown of IT systems or a significant
medium likelihood of losing important individual promotion risk we face. In addition, as labour markets become increas- loss of data could result in considerable disruptions to our
contracts. Nevertheless, given the maturity of our most impor- ingly competitive, we also face the risk of being unable to business. Insufficient project management could delay the
tant contracts, we assess the potential financial impact of this identify, recruit and retain the most talented people that best execution of projects critical to the Group or make them more
risk to be low in the medium term. meet the specific needs of our Group. To reduce this risk and expensive than planned. To mitigate system default risk, we
enable our employees to make use of their full potential, we review our IT policy on a regular basis and engage in pro-
strongly engage in developing a motivating working environ- active maintenance and business continuity planning. We also
ment. Our goal is to make the adidas Group the “Employer of ensure security of data by restricting user access and requiring
Choice” within our industry. This is supplemented by offering password changes every 90 days on our most critical systems.
attractive reward and incentive schemes as well as long-term We perform scheduled backups several times a day and one
career opportunities and planning see Employees, p. 070 . full backup daily, alternating between two different data centre
locations. In addition, for the central enterprise resource plan-
Our overall assessment of personnel risks remains unchanged ning system, our contingency solution allows us to quickly
compared to the prior year. Although we have grown our own- switch to a remote site if necessary – without any data loss.
retail activities (where employee turnover is higher than the System security and reliability are reviewed and tested inter-
Group average) and increased our employee base in emerging nally and via external audits on a regular basis. Our target
markets (where higher levels of wage inflation increase the availability of 99.7% for major IT applications was exceeded in
volatility of the employment market), the current economic 2008. IT project risks are further mitigated by implementing a
environment is likely to reduce volatility of the overall employ- proven project methodology for all IT projects and by perform-
ment market. Therefore, we continue to regard the occurrence ing regular risk reviews for all major projects.
likelihood of these risks as low. Should these risks materialise,
they could have a medium financial impact on our Group. We believe the risk of a major IT default continues to be low.
Such a default, however, would result in a significant potential
financial impact.
114 Group Management Report – Our Financial Year Risk and Opportunity Report
This leads to a maximum exposure of € 58 million in the event Currency risks Exposure to foreign exchange risk 1)
of default of any single bank. Furthermore, we held derivatives Currency risks for the adidas Group are a direct result of multi- based on notional amounts, € in millions
with a positive fair market value in the amount of € 213 mil- currency cash flows within the Group. The biggest single driver
lion. The maximum exposure to any single bank resulting from behind this risk results from the mismatch of the currencies
USD GBP JPY
these assets amounted to € 23 million and the average con- required for sourcing our products versus the denominations
centration was 4%. of our sales. The vast majority of our sourcing expenses are As at December 31, 2008
in US dollars while sales are denominated in other currencies Exposure from firm commitments
Financing and liquidity risks to a large extent – most notably the euro. Our main exposures and forecasted transactions (2,341) 323 339
Liquidity risks arise from not having the necessary resources are presented in the adjacent table. The exposure from firm Balance sheet exposure including
available to meet maturing liabilities with regard to timing, commitments and forecasted transactions was calculated on a intercompany exposure (192) (24) (7)
volume and currency structure. In addition, the adidas Group one-year basis. The 2007 figures have been restated to provide Total gross exposure (2,533) 299 332
faces the risk of having to accept unfavourable financing terms consistency of presentation. Hedged with other cash flows 83 — —
due to liquidity restraints. Our Group’s Treasury department Hedged with currency options 457 (25) (57)
uses an efficient cash management system to manage liquidity In line with IFRS 7 requirements, we have estimated the impact Hedged with forward contracts 1,294 (197) (185)
risk. At December 31, 2008, Group cash and cash equivalents on net income and shareholders’ equity based on changes in Net exposure (699) 77 90
amounted to € 244 million (2007: € 295 million). Moreover, our most important currency exchange rates. The calculated
As at December 31, 2007
our Group maintains € 2.7 billion bilateral short-term credit impacts mainly result from fair value changes of our hedging
Exposure from firm commitments
lines and a € 2 billion committed medium-term syndicated instruments. The analysis does not include effects that arise
and forecasted transactions (1,810) 372 249
loan facility with international banks, which does not include from the translation of our foreign entities’ financial state-
Balance sheet exposure including
a market disruption clause. The € 4.7 billion in credit lines ments into the Group’s reporting currency. The sensitivity intercompany exposure (65) 15 9
are designed to ensure sufficient liquidity at all times see analysis is based on the net balance sheet exposure, including Total gross exposure (1,875) 387 258
Treasury, p. 093 . intercompany balances from monetary assets and liabilities Hedged with other cash flows 136 0 0
denominated in foreign currencies. Moreover, all currency Hedged with currency options 562 0 (142)
Future cash outflows arising from financial liabilities that are derivatives were re-evaluated using hypothetical foreign Hedged with forward contracts 1,124 (153) (107)
recognised in the Consolidated Balance Sheet are presented exchange rates to determine the effects on net income and Net exposure (53) 234 9
within the adjacent table. This includes payments to settle equity. The analysis was performed on the same basis for both 1) Rounding differences may arise in totals.
obligations from borrowings as well as cash outflows from 2007 and 2008.
cash-settled derivatives with negative market values. Financial
liabilities that may be settled in advance without penalty are Based on this analysis, a 10% increase in the euro versus the Sensitivity analysis of foreign exchange rate changes
included on the basis of the earliest date of potential repay- US dollar at December 31, 2008, would have led to a € 10 mil-
€ in millions
ment. Cash flows for variable-interest liabilities are deter- lion increase in net income. The more negative market values
mined with reference to the conditions at the balance sheet of the US dollar hedges would have decreased shareholders’
USD GBP JPY
date. equity by € 108 million. A 10% weaker euro at December 31,
2008 would have led to a € 13 million decrease in net income.
As at December 31, 2008
Based on our available credit lines and business model, we Shareholders’ equity would have increased by € 133 million.
EUR +10% EUR +10% USD +10%
continue to regard the occurrence probability of financing The impacts of fluctuations of the euro against the British
Equity (108) 17 22
and liquidity risks, which could also lead to increased interest pound and of the US dollar against the Japanese yen on net Net income 10 (1) (1)
costs, as low. Nevertheless, failure to maintain liquidity could income and shareholders’ equity are also included in accord- EUR – 10% EUR – 10% USD – 10%
have a high financial impact on Group performance. ance with IFRS requirements. Equity 133 (20) (21)
Net income (13) 0 1
However, many other financial and operational variables that
could potentially reduce the effect of currency fluctuations are As at December 31, 2007
excluded from the analysis. These include: EUR +10% EUR +10% USD +10%
Equity (111) 9 28
— Interest rates and all other exchange rates are assumed Net income 5 (1) (1)
constant. EUR – 10% EUR – 10% USD – 10%
Equity 130 (11) (26)
Net income (6) 2 1
116 Group Management Report – Our Financial Year Risk and Opportunity Report
Corporate opportunities overview External and Industry Opportunities Increasing consumer demand for functional apparel
Consumer demand for functional apparel has increased sig-
nificantly in recent years as consumers realise the benefits of
External and industry opportunities Favourable macroeconomic and fiscal policy changes functional apparel over traditional cotton sportswear. Improved
Favourable macroeconomic and fiscal developments As a consumer goods company, consumer confidence and moisture management, superior ease of motion and increased
Sports participation on the rise spending can impact our sales development. Therefore, better comfort are all factors encouraging consumers to switch to
Increasing demand for functional apparel than initially forecasted macroeconomic developments and high-performance gear. The design and development of func-
Women’s segment offers long-term potential fiscal policy changes which support private consumption can tional apparel requires significantly more expertise, product
Ongoing fusion of sport and lifestyle have a positive impact on our sales and profitability. In addition, and material research as well as production know-how com-
Emerging markets as long-term growth drivers legislative changes, e.g. with regard to the taxation of corpo- pared to low-tech apparel. Therefore, only a few companies are
Growing popularity of “green” products rate profits, can positively impact Group profitability. able to supply high-end functional apparel. Our resources and
our positioning as a sports performance leader enable us to
Strategic and operational opportunities
Sports participation on the rise constantly develop innovative products and capitalise on them.
Strong market positions worldwide
Governments increasingly promote living an active lifestyle
Multi-brand approach
to fight obesity and cardiovascular disease. According to the Women’s segment offers long-term potential
Personalisation and customisation replacing mass wear
World Health Organization, around 400 million people were In our opinion, the women’s sports market is one of the most
Breaking new ground in distribution
Taking control of distribution rights
considered obese in 2005. Another 1.6 billion more were attractive segments in the sporting goods industry with women
Cost optimisation drives profitability improvements estimated to be overweight. These numbers are projected accounting for more than a third of total spending on athletic
to increase to 700 million and 2.3 billion respectively by footwear. The adidas Group has developed its Women’s catego-
Financial opportunities 2015. Once considered a problem only in affluent nations, ries over the past years. Product offerings in both performance
Favourable financial market changes obesity is also becoming an issue in countries with low per and lifestyle emphasise individuality, authenticity and style,
capita income. This development has serious health conse- in all three brand segments. Examples are adidas by Stella
quences and a dramatic effect on health care expenditures. McCartney, the Avon Pink Ribbon collection at Reebok, and the
As a result, governments and non-governmental organisa- Women’s r7® CGB MAX at TaylorMade. Our Group still gener-
tions are increasing their efforts to promote a healthy lifestyle ates the majority of its revenues in men’s and unisex catego-
and encourage sports participation. Given our strong market ries. The women’s category offers potential for further growth,
position, in particular in categories considered suitable for with shape, colours and sports specific to women. In 2009, we
weight loss such as training, running and swimming, we expect will continue to expand our women’s offer with, for example,
to benefit from this trend. the launch of a Reebok collection in partnership with Cirque du
Soleil see Reebok Strategy, p. 052 .
118 Group Management Report – Our Financial Year Risk and Opportunity Report
We expect the market for personalised and customised foot- Taking control of distribution rights Financial Opportunities
wear, apparel and hardware to grow strongly and evolve further Our brands do business in virtually all countries around the
in the coming years. In September 2008, the adidas segment world. The majority of our business is done through fully-
acquired Textronics, Inc., a specialist in the development of owned subsidiaries or sales organisations see Group Strategy, Favourable financial market changes
wearable sensors for use in fitness monitoring. The technology p. 046 . Nevertheless, in some markets, we work with distribu- Favourable exchange and interest rate developments can
will first be utilised in adidas running apparel and expanded tors or joint venture partners, in particular at brand Reebok. potentially have a positive impact on the Group’s financial
into other sports categories in the future. It will be an impor- In doing so, we capitalise on third-party expertise in terms results. Our Group Treasury department closely monitors
tant facet of the miCoach offering as smart apparel products of how to best service retailers in those countries. While this the financial markets to identify opportunities see Treasury,
complement the miCoach technology accessories. miCoach strategy can be appropriate in a market’s early development, p. 093 .
aims to provide 360 degree personalised training regimes to we strongly believe in having full control over distribution and
consumers. brand management in more mature markets. Therefore, it
is our Group’s strategy to buy back distribution rights for our Management Assessment of Overall Risk and Opportunities
Breaking new ground in distribution brands when possible and economically sensible. Over the last
The sporting goods retail environment is changing constantly. several years, we have been very successful in this respect. In Central risk management aggregates all risks reported by
People increasingly want to get involved with our brands. We 2008, we purchased /founded two Reebok companies in Latin brand, regional and headquarter functions. Based on the com-
have adapted our distribution to cater to this change and have America, in Brazil /Paraguay and Argentina. In 2009, we will pilation of risks – taking into account the occurrence likelihood
made controlled space initiatives a strategic priority. We intro- take over the remaining 25% of Reebok distribution rights in and potential financial impact and the current business outlook
duced e-commerce in the Netherlands as a test market for Spain and consolidate adidas and Reebok’s Spanish offices. explained within this report – adidas Group Management does
Europe in 2008. We also see opportunities to operate new shop Going forward, we will evaluate potential buyback opportunities not foresee any individual or aggregate risks which could
formats. Examples of this are co-branded stores with partners on a case-by-case basis, considering opportunities as well as materially jeopardise the viability of the Group as a going con-
such as the NBA (adidas) and NHL (Reebok). In July 2008, we inherent risks. cern. Management remains confident that the Group’s earnings
opened the world’s first adidas Brand Center in Beijing, taking power forms a solid basis for our future business development
the retail experience to a new level see adidas Strategy, p. 048 . Cost optimisation drives profitability improvements and provides the necessary resource to pursue the opportuni-
We also launched new store formats for adidas Originals called Continued optimisation of key business processes and ties available to the Group.
Atelier and Studio. Rockport is also planning to launch a new strict cost control are vital to achieving high profitability and
store format in 2009 see Reebok Strategy, p. 052 . Through return on invested capital. As a result of the Reebok acquisi- Nonetheless, due to the current financial market and exchange
initiatives like these, we can more effectively target consum- tion, we generated cost synergies that support adidas and rate volatility as well as uncertainty over the magnitude of
ers and involve them emotionally with our products. In our Reebok profitability development. Nonetheless, our profit spillover effects on private consumption, we believe that,our
wholesale business, we are increasing our flexibility to utilise margins continue to be below those of our main competitors. risk profile has increased in comparison to the prior year.
changes in consumption behaviour as they arise. In 2008, We do, however, see numerous levers for streamlining our This reflects increases in both likelihood of occurrence and
for example, we rolled out a unique shop-in-shop partnership cost base going forward. We can further simplify processes potential financial impact of certain individual risks as outlined
between Reebok and a major retailer in the USA. across brands and functions to reduce operational ineffi- in this report.
ciencies owed to the increased complexity of our Group. In
North America, we believe we will be able to realise medium-
term economies of scale as we continue to integrate adidas
and Reebok back-office functions. In addition, we strive to
further increase efficiency in our supply chain and make it
truly demand-driven. By implementing end-to-end planning
processes and improving our replenishment capabilities, we
see opportunities to not only better serve our customers but
also to further reduce our operating working capital needs
see Global Operations, p. 064 . Another example is the reduc-
tion of the number of articles, which reduces workload in the
creation area and warehouse costs, and allows us to offer
more focused ranges to our retail partners.
120 Group Management Report – Our Financial Year Subsequent Events and Outlook
European sporting goods industry to decline Latin American sporting goods industry affected by In 2009, the Group’s operating expenses as a percentage
compared to prior year depreciation of currencies against the dollar of sales are expected to increase. Higher expenses for con-
Due to the non-recurrence of positive effects related to the With a majority of sporting goods in Latin America being pur- trolled space initiatives in the adidas and Reebok segments
UEFA EURO 2008™ in the first half of the year, and ongoing chased in US dollars, we expect demand for sporting goods to will drive increases, partially compensated by positive effects
difficult market conditions in major Western European markets be negatively affected by the recent depreciation of currencies from efficiency improvements throughout our organisation.
such as the UK and Spain, we expect the sporting goods indus- in the major countries of the region. In addition, there are Marketing working budget expenses as a percentage of sales
try to decline in Europe in 2009. While the region’s emerging currently concerns related to increasing trade barriers being are forecasted to be at or below the prior year level. Operating
markets are likely to be more resilient, we also anticipate a potentially implemented in certain markets such as Brazil income is expected to decline. This will mainly be driven by the
slowdown in consumer spending to impact sporting goods see Risk and Opportunity Report, p. 107. non-recurrence of book gains from acquisitions and disposals
industry sales in these markets. In the second half of the year, in the TaylorMade-adidas Golf segment in the prior year.
the industry is expected to turn its attention to the run-up for Consolidation of new businesses supports
the 2010 FIFA World Cup™, which should provide some positive TaylorMade-adidas Golf and Reebok sales We expect the number of employees within the adidas Group to
impetus to industry sales towards the end of 2009. Sales recorded in the TaylorMade-adidas Golf segment will be around the prior year level. A hiring freeze implemented in
be supported by the consolidation of Ashworth, Inc. revenues autumn 2008 for all Group and brand functions and initiatives
North American sporting goods market to for the full twelve-month period. Ashworth, Inc., a US-based to streamline our organisation are forecasted to offset new
experience consolidation golf lifestyle apparel brand, has been consolidated within the hirings related to further retail expansion in emerging markets.
As a result of the recession in the USA, we expect the North adidas Group as of November 20, 2008. In addition, sales in the
American sporting goods market to decline in 2009. Accord- Reebok segment are expected to be positively influenced by the The adidas Group will continue to spend around 1% of sales on
ing to the National Retail Federation, retail industry sales are consolidation of sales from the brand’s new companies in Latin research and development in 2009. Areas of particular focus
expected to fall 0.5% compared to the prior year. Lower overall America for the full twelve-month period. include training, running, football and basketball at the adidas
consumer spending and potential shifts in consumption pat- and Reebok brands, as well as golf hardware at TaylorMade-
terns away from discretionary products are expected to lead to adidas Group sales and earnings per share adidas Golf. The number of employees working in research and
shifts in consumer priorities which we expect to also negatively to decrease in 2009 development throughout the Group will remain stable in 2009.
impact the sporting goods industry. In addition, we anticipate We expect adidas Group sales to decline at a low- to mid-
further consolidation of the retail landscape as several smaller single-digit rate on a currency-neutral basis in 2009. Sales In 2009, we expect the operating margin for the adidas Group
retailers succumb to financial pressure and many rationalise development will be negatively impacted by weaker consumer to decline. This forecast reflects our projection of a Group
existing store bases. demand due to low levels of consumer confidence and rising gross margin decline and an increase in operating expenses
unemployment in many major markets. Group currency- as a percentage of sales.
Asian sporting goods industry negatively impacted neutral sales in the emerging markets of Europe, Asia and
by slowing domestic demand Latin America are forecasted to develop better relative to As a result of lower interest rate expenses in line with the
Although we expect Asia to continue to be the fastest-growing mature markets such as Western Europe and North America. planned reduction of net borrowings, we forecast lower
sporting goods market in 2009, we anticipate growth rates to financial expenses in 2009. The Group tax rate is expected to
moderate considerably compared to the prior year. In China, In 2009, the adidas Group gross margin is forecasted to decline. be slightly above the prior year level (2008: 28.8%).
industry growth is likely to moderate significantly in 2009, due A promotional environment in mature markets, as well as
to the exceptionally high rate of retail expansion in 2008, and expected higher sourcing costs due to increased raw material As a result of these developments, net income attributable to
high sell-in rates by sporting goods manufacturers ahead and wage costs, in particular in the first half of the year, will shareholders is projected to decline in 2009. Basic and diluted
of the Beijing 2008 Olympics. Nevertheless, we expect the contribute to this development. Further own-retail expansion earnings per share are expected to decline at a lower rate
sporting goods industry in China to show continued growth at both adidas and Reebok is expected to partially offset these than net income attributable to shareholders due to a lower
in 2009, as underlying consumer trends remain positive and developments. weighted average number of shares outstanding compared to
retail infrastructure continues to develop across the country. the prior year.
In Japan, however, we expect the sporting goods industry to
decline, in line with private consumption expectations in that
market.
122 Group Management Report – Our Financial Year Subsequent Events and Outlook
Reebok order backlogs (currency-neutral) 1) Reebok backlogs decline TaylorMade-adidas Golf sales to increase
Development by product category and region in %
Currency-neutral Reebok backlogs at the end of 2008 were at a low-single-digit rate
down 17% versus the prior year. In euro terms, this repre- We expect the consolidation of Ashworth, Inc. for the full
sents a decline of 18%. Footwear backlogs decreased 10% 12-month period to support a currency-neutral low-single-
North
Europe America Asia Total in currency-neutral terms (–11% in euros) as a result of digit sales increase at TaylorMade-adidas Golf in 2009. On a
declines in all regions. Apparel backlogs declined 33% on a comparable basis, however, excluding Ashworth, sales are
Footwear (12) (22) (11) (10) currency-neutral basis driven by lower orders for licensed projected to decline despite a strong product pipeline see
Apparel (22) (50) (16) (33) apparel in particular in North America (– 33% in euros). These TaylorMade-adidas Golf Strategy, p. 056. This will be a result of the
Total 2) (15) (29) (13) (17) developments largely reflect challenging market conditions in challenging market situation in North America. Because the
1) At year-end, change year-over-year. Reebok’s major markets. Due to the exclusion of the own-retail order profile in golf differs from other parts of our Group’s
2) Includes hardware backlogs.
business and the high share of at-once business in Reebok’s business, we do not provide order information for TaylorMade-
sales mix, order backlogs in this segment are not indicative of adidas Golf.
expected sales development.
Reebok order backlogs (in €) 1)
Development by product category and region in % Reebok segment sales to be at least stable
Reebok segment sales are projected to be at least stable
North compared to the prior year on a currency-neutral basis in 2009.
Europe America Asia Total
The brand’s key focus categories, Women’s Fitness and Men’s
Sport, are expected to develop significantly better compared to
Footwear (18) (19) (7) (11)
other categories due to new product launches and campaigns
Apparel (25) (49) (12) (33)
in 2009 see Reebok Strategy, p. 052 . In the Classics category,
Total 2) (20) (26) (9) (18)
we will continue to visibly upgrade and improve the brand’s
1) At year-end, change year-over-year.
2) Includes hardware backlogs.
product offering. The consolidation of sales from Reebok’s new
companies in Latin America for the full twelve-month period is
projected to support revenue development.
124 Group Management Report – Our Financial Year Subsequent Events and Outlook
Efficient liquidity management in place for 2009 and beyond Increasing momentum for adidas Group in 2010 and beyond Intensify controlled space focus: We intend to increase our
Efficient liquidity management continues to be a priority for In line with the projections of the OECD, the World Bank and controlled space initiatives to at least 35% of Group sales in
the adidas Group in 2009. We focus on continuously anticipat- independent researchers, we expect the global macroeconomic the coming years. This includes new openings of adidas and
ing the cash inflows from the operating activities of our Group environment to recover in 2010, although growth rates are Reebok own-retail stores, the further extension of our mono-
segments, as this represents the main source of liquidity within estimated to remain well below 2008 levels. We forecast this branded store base in China, as well as new shop-in-shop
the Group. Liquidity is forecasted on a multi-year financial development to support the operational performance of our initiatives with retail partners in several markets around the
and liquidity plan on a quarterly basis. Long-term liquidity is Group in 2010. Under this assumption, we project adidas Group world.
ensured by continued positive free cash flows and sufficient sales and net income to improve in 2010 compared to 2009
unused committed and uncommitted credit facilities see levels. Football sales related to the 2010 FIFA World Cup™ Leverage growth and operational scale through to bottom line:
Treasury, p. 093 . Consequently, we do not plan any significant will support revenues in the adidas segment. We also forecast A higher exposure to emerging markets as well as expanding
financing initiatives in 2009. our initiatives to revitalise the Reebok brand to gain traction. controlled space activities are important levers to improving
Finally, the TaylorMade-adidas Golf segment is projected brand presence, increasing sell-through and driving higher
Management to propose unchanged dividend of € 0.50 to benefit from leading market positions in key categories, Group profitability. Our continued focus on innovation and
We are committed to maintaining the Group’s dividend payout supported by continuously bringing new product innovations to design leadership and marketing excellence is an important
ratio corridor of between 15 and 25% of net income attribut- the consumer as well as leveraging the benefit we anticipate Group priority to protect and increase the image and consumer
able to shareholders. At our Annual General Meeting on May 7, gaining from the Ashworth acquisition. appeal of all our brands. This is particularly important in the
2009, we intend to propose an unchanged dividend per share Reebok segment, as we work to support the revitalisation of
of € 0.50 for the financial year 2008. Management has decided Key goals for long-term success the Reebok brand. Taking these opportunities together with
to maintain the dividend level in light of the tough business In addition, the Group will continue to work towards reaching our continuous efforts to reduce organisation complexity
environment and our focus on reducing net borrowings. Based our priority goals to achieve long-term sustainable shareholder and further integrate Group structures to take advantage of
on the number of shares outstanding at the end of 2008, value creation. These include: our global scale, we believe there is significant potential to
the dividend payout will decrease 2% to € 97 million (2007: increase the Group’s operating margin to over 11%.
€ 99 million). This represents a payout ratio of 15% versus Expand presence in emerging markets: Emerging economies
18% in 2007. in Asia, Europe and Latin America have consistently grown at Increase financial flexibility: We intend to further decrease net
stronger rates than more mature markets over the last several borrowings to achieve a financial leverage of below 50% in the
Potential changes in legal structure due to years. We believe these markets continue to represent the medium term. Excess cash will be largely used to achieve this
subsidiary mergers most significant long-term opportunity to our industry as a goal and reduce exposure to financing risks. A strong balance
In 2009, we will continue to evaluate the merger of adidas and whole. Rising standards of living, increasing disposable income sheet and a lower level of debt also increase our flexibility to
Reebok subsidiaries in various countries on a case-by-case and positive demographic trends should continue to support realise value-generating medium- and long-term opportunities
basis. In doing so, we strive to realise operational and financial increasing private consumption in these markets. Therefore, in the best interests of our shareholders as they arise.
efficiencies with a view to maximising long-term growth oppor- assuming constant exchange rates, our Group sees the oppor-
tunities for our Group. In markets where third parties act as tunity to increase our representation in emerging markets to
distributors for our brands or control a stake in our subsidi- over 35% of Group sales.
aries we may consider the buyback of distribution rights, the
buyout of minority stakes or the setting up of joint ventures for
our brands.
adidas 128
Products and Campaigns
Reebok 138
Products and Campaigns
4
We define ourselves through our products. High-profile
technologies and unique designs are the key factors
for our success. Our researchers, developers and
designers push the limits of innovation. Have the right
idea at the right time. Launch desirable products when
consumers demand it. Introduce at least one major in-
novation every year. This is the strategy of our success.
The following pages introduce some of our most excit-
ing and important products and campaigns for 2009.
And they make it clear: Our game plan is set.
+4.0
adidas TECHFIT Power WEB includes exclusive adidas technology.
%
— Through the use of advanced materials and construction, adidas
jump* TECHFIT Power WEB compression garments give athletes the ultimate
advantage whether exploding out of the blocks, attacking the board or
adidas TECHFIT Power WEB compression
powering through the defence.
garments support and stabilise core
muscle groups, helping athletes achieve
dynamic and agile movements.
+1.1 %
—
speed*
adidas TECHFIT Power WEB converts
the energy of an athlete’s movement
into increased speed generation.
+5.3 %
—
power*
When optimal pressure is applied to
the muscles through adidas TECHFIT
Power WEB, the blood vessels compress,
increasing blood flow which improves
the supply of oxygen.
129
F50 TUNIT ™
adidas
For over 50 years, adidas has played a major role in all significant
100
football product innovations. This gives adidas a degree of credibility
%
— that no other brand can claim. Footballers and fans know that adidas
fit lives for football, and that they can rely on our products. adidas football
boots will support the brand in further expanding its football market
Engineered lightweight TUNIT ™
leadership position in 2009.
microfibre synthetic upper for
perfect fit.
1 st
The F50 TUNIT ™ is the world’s
first fully customisable football
boot with exchangeable studs,
chassis and upper.
100 %
—
flexibility
Messi’s
—
No. 1
The F50 TUNIT ™ is
The F50 TUNIT ™ features a fully adaptable Messi’s boot of choice.
TRAXION ® outsole and comes with firm
ground, hard ground and soft ground
studs.
360°
GEOFIT ™ frame for
increased comfort on
every step of the way.
3D
FORMOTION™
Reduces impact force and
pronation velocity.
100 %
Full forefoot adiPRENE ®+
for a dynamic push-off.
131
Vespa Gran Lusso
adidas
6
From the stylish streets of Milan to the modern looks of Brighton, pop
decades icon scooter manufacturer Vespa and the 3-Stripes come together to
of heritage present a new proposition to the market. The collection offers footwear
and apparel referencing classic and contemporary looks and colours
Both brands, Vespa and adidas,
made for both classic scooter riders and all fans of casual and clean
reference six decades of rich
heritage. design.
Perfect
merge
Vespa and adidas – two authentic
lifestyle brands, both focused on
design – this is what you could
call the perfect merge.
CLIMACOOL ® is a series of material placements and constructions that work together to help
maintain an athlete’s body temperature at a desired 37 degrees. In 2009, adidas will communi-
cate a complete men’s training offer which will be supported by a campaign highlighting the key
benefits of the CLIMACOOL ® offering. The central theme of the campaign “Air Cooled Training”
emphasises that when your body is air cooled, you stay cool, comfortable and dry.
133
NBA Tested. Brotherhood Ready.
adidas
adidas Basketball kicked off the 2008 / 2009 NBA season with the next chapter in Brotherhood:
“NBA Tested. Brotherhood Ready”. This campaign brought together NBA All-Stars Gilbert
Arenas, Dwight Howard, Tracy McGrady, Tim Duncan and Kevin Garnett to introduce the two
styles of player that make up a Brotherhood: Creators and Commanders. Based on a series
of films, the campaign was showcased through TV, Internet, magazines and prominent retail
destinations worldwide.
To strengthen adidas’ positioning as the athletic brand in the outdoor market, adidas is
launching a new range of products aimed specifically at outdoor athletes. The world record-
breaking speed-climbing Huber brothers, Alexander and Thomas, are the epitome of speed
and agility on the mountainside and are ideal testimonials for the new range of adidas Terrex
footwear and apparel. The campaign launches in March 2009.
135
Celebrate Originality
adidas
2009 marks the 60th anniversary of adidas. In keeping with this important milestone, adidas
unveiled its largest global brand campaign ever for adidas Originals under the banner of
“Celebrate Originality”. The campaign is set against the backdrop of a house party hosting an
eclectic mix of people from the worlds of music, fashion and sport. The campaign launched
in the USA in November 2008 and in the rest of the world in January 2009.
adidas SLVR Label Campaign
adidas
The adidas SLVR Label’s key message is “Simply perfect”. The campaign highlights the
new label’s connection to adidas as well as the values of all adidas SLVR Label products.
adidas SLVR Label is clean, simple, inclusive and sophisticated. It brings creative solutions
to reduce complexity. The adidas SLVR Label will be promoted through advertising in
select fashion and lifestyle magazines, on websites as well as through outdoor executions
in specific local markets.
137
EasyTone™
Reebok
28 %
more muscle activity for
the gluteus maximus
The EasyTone ™ activates the
gluteus maximus more than a
traditional walking shoe.
11 %
more activity for key muscles
in the calves and hamstrings
The EasyTone ™ activates key
leg muscles and tones them
with every step, acting as your
personal gym-on-the-go.
100 %
—
seamless
With a seamless interior,
versatile needs of today’s athletes. Through its adjustable air-inflated
underfoot cushioning system, the SelectRide ™ technology creates two
shoes in one - a running shoe or a training shoe at the push of a button.
The shoe also features Reebok’s SmoothFit™ technology, providing an
the SmoothFit™ technology
of the SelectRide ™ amazing fit through the elimination of seams in the interior of the shoe.
eliminates irritation and SelectRide ™ launched in the United States, supported by an integrated
maximises performance. marketing campaign featuring eight of Reebok’s top athletes such as
Peyton and Eli Manning and Yao Ming.
1 second
to change
The SelectRide ™ can be changed from
a running shoe into a training shoe
with just one click.
139
The Pump ™
Reebok
20
anniversary in 2009. To honour the heritage and design of The Pump™,
Reebok will launch a limited edition of The Pump ™ anniversary shoes
with exclusive retail collaboration partners starting late 2009.
years
Reebok celebrates another mile-
stone of its sports heritage in 2009:
the 20th anniversary of the iconic
Pump ™.
20 retailers
Reebok has partnered with 20
selected retailers around the world
to develop custom collaborations of
The Pump ™ that will be exclusively
designed and launched in their
stores in limited quantities.
22
The 8.0.8 O-Stick has more aerodynamic arches which
provide less drag than ever before and increase the stick
120
The unique architecture in the lower
part of the shaft makes the Reebok
8.0.8 O-Stick 22% more aerodynamic
than a regular stick. points
The number of points NHL super-
star and 8.0.8 user Pavel Datsyuk
accumulated in the 2007–2008
regular season and playoffs with
the Reebok O-Stick.
68 players
A total of 68 NHL players
wear the U+™ Pro Skate.
141
JUKARI Fit to Fly ™
Reebok
In 2008, Reebok and Cirque du Soleil entered into a revolutionary partnership. Together, a new
workout experience for women was created – fusing the intriguing world of Cirque du Soleil with
Reebok’s expertise in fitness. In February 2009, Reebok and Cirque du Soleil launched JUKARI
Fit to Fly™ – offering women an entirely new way to work out. Integral to this experience is the
new equipment – the FlySet™, enabling a diverse repertoire of movements. JUKARI Fit to Fly™
is inspired by the imaginative movements of Cirque du Soleil artists, brought to life through a
systematic progression of exercises. By combining these exercises with fluid choreography,
the workout experience aims to improve strength and flexibility. Along with these physical ele-
ments, JUKARI Fit to Fly™ incorporates the joy of movement, the fun that comes with training
together and the artistic flair of Cirque du Soleil. Communication of the new workout experience
started with a global marketing campaign in February 2009.
Alongside JUKARI Fit to Fly™ is a fully integrated women’s footwear and apparel range, the
“Reebok Cirque du Soleil Collection”. It combines the performance demands of the workout
experience with the creativity and artistry of Cirque du Soleil. The collection has a style
expression that is forward-looking, exploratory and very feminine.
143
On The Move
Reebok
In 2009, Reebok will launch a new collection of women’s apparel and footwear called “On The
Move”, inspired by Reebok’s years of leadership in women’s fitness. Created for the needs of a
woman’s busy lifestyle, the products are versatile and can be mixed and matched. The collection
was designed specifically for a woman’s body and how she moves. The “On The Move” collection
is the perfect fusion between performance and style.
Rockport’s spring 2009 advertising campaign underscores the brand’s commitment to style and
authenticity. Rockport empowers consumers to do more, be more, live more, with stylish shoes
engineered to feel good. The global campaign will be executed across all markets through print,
online and outdoor advertising.
145
R9 ™ Driver
TaylorMade-adidas Golf
24 driver
configurations
The adjustable head and the movable weights
enable players to optimise their own driver.
3 movable
weights
Movable Weight Technology ™
lets players change the head’s
centre of gravity.
To promote the new Burner ® family of irons, the multi-platform campaign “The Set is Dead”
will launch in 2009. Irons have for too long been engineered as a set – without heed to the
shortcomings of this approach. TaylorMade realised that because long-irons, middle-irons
and short-irons serve different purposes they should be designed separately so that each
delivers a specific type of performance. “The Set is Dead” is a declaration of TaylorMade’s new
way of creating high-performance irons.
147
Alexander Ovechkin
Reebok
Alexander Ovechkin is currently one of the most exciting
stars in the NHL and 2008 was his year: He led the NHL
with 11 winners and 22 power-play goals, plus he eclipsed
the NHL record of 63 goals by a left-winger. Deservingly,
he was named Most Valuable NHL Player. His goal: To win
everything, every possible title. “To reach it, my game plan
is to not just play, but to control the game. To not just play
but to learn from every game and every move.”
Consolidated Financial Statements
Responsibility Statement 150
Independent Auditor’s Report 151
Consolidated Balance Sheet 152
Consolidated Income Statement 153
Consolidated Statement of Cash Flows 154
Consolidated Statement of Recognised 156
Income and Expense
Notes 157
Statement of Movements of Intangible 196
and Tangible Assets and Financial Assets
Shareholdings 198
Glossary 208
Financial Statements
Index 214
Consolidated
Financial Calendar 2009 215
Responsibility Statement
To the best of our knowledge, and in accordance with the applicable reporting principles, the
consolidated financial statements give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Group, and the Group Management Report includes a fair review
of the development and performance of the business and the position of the Group, together with
a description of the principal opportunities and risks associated with the expected development
of the Group.
We conducted our audit of the consolidated financial statements in accordance with § 317 HGB
and German generally accepted standards for the audit of financial statements promulgated by
the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the
audit such that misstatements materially affecting the presentation of the net assets, financial
position and results of operations in the consolidated financial statements in accordance with the
applicable financial reporting framework and in the Group Management Report are detected with
reasonable assurance. Knowledge of the business activities and the economic and legal environ-
ment of the Group and expectations as to possible misstatements are taken into account in the
determination of audit procedures. The effectiveness of the accounting-related internal control
system and the evidence supporting the disclosures in the consolidated financial statements and
the Group Management Report are examined primarily on a test basis within the framework of
the audit. The audit includes assessing the annual financial statements of those entities included
in consolidation, the determination of entities to be included in consolidation, the accounting and
consolidation principles used and significant estimates made by Management, as well as evalu-
ating the overall presentation of the consolidated financial statements and Group Management
Report. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on the findings of our audit, the consolidated financial statements comply
with IFRS, as adopted by the EU, and the additional requirements of German commercial law
pursuant to § 315a section 1 HGB and give a true and fair view of the net assets, financial posi-
tion and results of operations of the Group in accordance with these requirements. The Group
Management Report is consistent with the consolidated financial statements and as a whole
provides a suitable view of the Group’s position and suitably presents the opportunities and
risks of future development.
152 Consolidated Financial Statements Consolidated Balance Sheet — Consolidated Income Statement
Consolidated income statement (IFRS)
€ in millions
Note Year ending Dec. 31, 2008 Year ending Dec. 31, 2007 Change
Note Year ending Dec. 31, 2008 Year ending Dec. 31, 2007
Operating activities:
Income before taxes 904 815
Adjustments for:
Depreciation and amortisation 10, 12, 13, 25 234 215
Unrealised foreign exchange gains, net (46) (23)
Interest income 27 (37) (27)
Interest expense 27 178 166
Gains on sale of property, plant and equipment, net (7) (7)
Other non-cash income 24 (21) —
Operating profit before working capital changes 1,205 1,139
Increase in receivables and other current assets (236) (66)
(Increase) /Decrease in inventories (324) 26
Increase in accounts payable and other current liabilities 374 97
Cash provided by operations before interest and taxes 1,019 1,196
Interest paid (176) (161)
Income taxes paid (346) (255)
Net cash provided by operating activities 497 780
Investing activities:
Purchase of trademarks and other intangible assets (60) (55)
Proceeds from sale of other intangible assets 8 10
Purchase of property, plant and equipment (316) (230)
Proceeds from sale of property, plant and equipment 27 30
Acquisition of further investments in subsidiaries 4 (6) (7)
Acquisition of subsidiaries and other business units net of cash acquired 4, 31 (50) (2)
Purchase of short-term financial assets (59) (47)
Purchase of investments and other long-term assets (25) (11)
Interest received 37 27
Net cash used in investing activities (444) (285)
Note Year ending Dec. 31, 2008 Year ending Dec. 31, 2007
Financing activities:
Proceeds from /Repayments of long-term borrowings 588 (315)
Dividend to shareholders of adidas AG 21 (99) (85)
Dividend to minority shareholders (0) (1)
Exercised share options 0 0
Repurchase of adidas AG shares (409) —
Cash repayments of short-term borrowings (186) (109)
Net cash used in financing activities (106) (510)
Note Year ending Dec. 31, 2008 Year ending Dec. 31, 2007
Net gain /(loss) on cash flow hedges, net of tax 23 149 (38)
Actuarial gain of defined benefit plans, net of tax 18 2 10
Currency translation 78 (237)
Net income recognised directly in equity 229 (265)
Total income and expense recognised in the financial statements 873 290
156 Consolidated Financial Statements Consolidated statement of recognised income and expense — Notes
Notes New standards, amendments to standards and interpretations applicable for the financial year
ending December 31, 2008 are:
adidas AG, a listed German stock corporation, and its subsidiaries — IAS 39/ IFRS 7 Amendments – Reclassification of Financial Instruments (effective date: July
design, develop, produce and market – increasingly through own-retail 1, 2008): These amendments had no impact on the Group’s financial statements.
activities – a broad range of athletic and sports lifestyle products. — IFRIC 11 IFRS 2 – Group and Treasury Share Transactions (effective date: March 1, 2007):
This interpretation had no impact on the Group’s financial statements.
The Group’s Headquarters are located at Adi-Dassler-Str. 1, 91074 — IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements
Herzogenaurach, Germany. The adidas Group has divided its operating and their Interaction (effective date: January 1, 2008): This interpretation had no impact on the
activities by major brands into three segments: adidas, Reebok and Group’s financial statements.
TaylorMade-adidas Golf. New standards and interpretations that will be effective for financial years after December 31,
2008, and have not been applied in preparing these consolidated financial statements are:
adidas branded products include footwear, apparel and hardware, such — IAS 1 Presentation of Financial Statements – Revised (effective date: January 1, 2009): This
amendment is not expected to have any material impact on the Group’s financial statements.
as bags and balls. The products are designed and developed by adidas — IAS 23 Borrowing Costs – Revised (effective date: January 1, 2009): This amendment is not
and are almost exclusively manufactured by subcontractors on behalf of expected to have any material impact on the Group’s financial statements.
adidas. — IAS 32 / IAS 1 Amendments – Puttable Financial Instruments and Obligations Arising on
Liquidation (effective date: January 1, 2009): These amendments are not expected to have any
material impact on the Group’s financial statements.
Reebok branded products also include footwear, apparel and hardware, — IFRS 1 / IAS 27 Amendments – Cost of an Investment in a Subsidiary, Jointly Controlled Entity
such as bags and balls. The products are designed and developed by or Associate (effective date: January 1, 2009): These amendments are not expected to have any
material impact on the Group’s financial statements.
Reebok and are almost exclusively manufactured by subcontractors on — IFRS 2 Amendment – Share-based Payment – Vesting Conditions and Cancellations (effective
behalf of Reebok. date: January 1, 2009): This amendment is not expected to have any impact on the Group’s finan-
cial statements.
— IFRS 8 Operating Segments (effective date: January 1, 2009): This new standard is not
TaylorMade designs, develops and assembles or manufactures high- expected to have any impact on the Group’s financial statements.
quality golf clubs, balls and accessories. adidas Golf branded products — IFRIC 13 Customer Loyalty Programmes (effective date: July, 2008): This interpretation is not
include footwear, apparel and accessories. expected to have any material impact on the Group’s financial statements.
— Improvements to IFRSs (2007) (effective date: January 1, 2009): These improvements are not
expected to have any material impact on the Group’s financial statements.
1 General Entities shall apply the new standards, amendments to existing standards and interpretations for
The accompanying consolidated financial statements of adidas AG and its subsidiaries (collec- annual periods beginning on or after the effective date.
tively the “adidas Group” or the “Group”) as at December 31, 2008, are prepared in accordance
with International Financial Reporting Standards (IFRS), as adopted by the European Union, and New standards and interpretations, and amendments to existing standards and interpretations
the additional requirements of German commercial law pursuant to § 315a section 1 HGB. are usually not applied by the Group before the effective date.
The consolidated financial statements have been prepared on the historical cost basis, with the
exception of certain items such as cash and cash equivalents, available-for-sale financial assets,
derivative financial instruments and receivables, which are measured at fair value.
The consolidated financial statements are presented in euros and all values are rounded to the
nearest million.
Principles of consolidation In the individual financial statements of Group companies, monetary items denominated in non-
The consolidated financial statements include the accounts of adidas AG and its direct and functional currencies of the subsidiaries are generally measured at closing exchange rates at
indirect subsidiaries, which are prepared in accordance with uniform accounting principles. the balance sheet date. The resulting currency gains and losses are recorded directly in income.
A company is considered a subsidiary if adidas AG directly or indirectly governs the financial Assets and liabilities of the Group’s non-euro functional currency subsidiaries are translated into
and operating policies of the respective enterprise. the reporting currency, the “euro”, which is also the functional currency of adidas AG, at closing
exchange rates at the balance sheet date. Revenues and expenses are translated at exchange
The number of consolidated subsidiaries evolved as follows for the years ending December 31, rates on the transaction dates. All cumulative differences from the translation of equity of foreign
2008 and 2007, respectively: subsidiaries resulting from changes in exchange rates, are included in a separate item within
shareholders’ equity without affecting income.
Number of consolidated companies A summary of exchange rates to the euro for major currencies in which the Group operates is as
follows:
2008 2007
Exchange rates
January 1 171 168 € 1 equals
Newly founded /consolidated companies 10 6
Divestments /exclusion from consolidation (3) (1) Average rate Spot rate
Merged companies (2) (2) for the year ending Dec. 31 at Dec. 31
The first-time consolidation of purchased companies had a material impact in 2008 see Note 4 . Derivative financial instruments
The Group uses derivative financial instruments, such as currency options, forward contracts
Within the scope of the first-time consolidation, all acquired assets and liabilities are recognised as well as interest rate swaps and cross-currency interest rate swaps, to hedge its exposure to
in the balance sheet at fair value. A debit difference between the acquisition cost and the propor- foreign exchange and interest rate risks. In accordance with its Treasury Policy, the Group does
tionate fair value of assets and liabilities is shown as goodwill. A credit difference is recorded in not enter into derivative financial instruments with banks for trading purposes.
the income statement. No fair value adjustments are recognised at the first-time consolidation
of acquired minority interests in companies accounted for using the “purchase method”. A debit Derivative financial instruments are initially recognised in the balance sheet at fair value, and
difference between the cost for such an additional investment and the carrying amount of the net subsequently also measured at their fair value. The method of recognising the resulting gains
assets at the acquisition date is shown as goodwill. A credit difference is recorded in the income or losses is dependent on the nature of the item being hedged. On the date a derivative contract
statement. is entered into, the Group designates certain derivatives as either a hedge of a forecasted trans-
action (cash flow hedge), a hedge of the fair value of a recognised asset or liability (fair value
All intercompany transactions and balances, as well as any unrealised gains and losses hedge) or a hedge of a net investment in a foreign entity.
arising from intercompany transactions are eliminated in preparing the consolidated financial
statements.
For derivative instruments designated as fair value hedges, the gains or losses on the deriv- Inventories
atives and the offsetting gains or losses on the hedged items are recognised immediately in net Merchandise and finished goods are valued at the lower of cost or net realisable value, which
income. is the estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale. Costs are determined using a
Certain derivative transactions, while providing effective economic hedges under the Group’s risk standard valuation method: the “average cost method”. Costs of finished goods include cost of
management policies, may not qualify for hedge accounting under the specific rules of IAS 39. raw materials, direct labour and the components of the manufacturing overheads which can rea-
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting sonably be attributed. The net realisable value allowances are computed consistently throughout
under IAS 39 are recognised immediately in the income statement. the Group based on the age and expected future sales of the items on hand.
Hedges of net investments in foreign entities are accounted for in a similar way to cash flow Assets /liabilities classified as held-for-sale
hedges. If, for example, the hedging instrument is a derivative (e.g. a forward contract) or, for Assets and liabilities (primarily non-current) that are expected to be recovered principally
example, a foreign currency borrowing, effective currency gains and losses in the derivative and through sale rather than through continuing use are classified as held-for-sale. These are
all gains and losses arising on the translation of the borrowing, respectively, are recognised in measured at the lower of their carrying amount and fair value less cost to sell.
equity.
Property, plant and equipment
The Group documents the relationship between hedging instruments and hedged items at Property, plant and equipment are stated at cost (which comprises any costs directly attributable
transaction inception, as well as the risk management objectives and strategies for undertaking to bringing the asset to the condition necessary for it to be capable of operating in the manner
various hedge transactions. This process includes linking all derivatives designated as hedges intended by Management) less accumulated depreciation (except for land and construction in
to specific firm commitments and forecasted transactions. The Group also documents its progress) and accumulated impairment losses. Depreciation is computed utilising the “straight-
assessment of whether the derivatives that are used in hedging transactions are highly effec- line method”, except where the “declining-balance method” is more appropriate in light of the
tive by using different methods of effectiveness testing, such as the “dollar offset method” or actual utilisation pattern. Useful lives are as follows:
the “hypothetical derivative method”.
The fair values of forward contracts and currency options are determined on the basis of market Useful lives of property, plant and equipment
conditions on the reporting dates. The fair value of a currency option is determined using gener-
ally accepted models to calculate option prices. The fair market value of an option is influenced
not only by the remaining term of the option but also by additional factors, such as the actual
Years
foreign exchange rate and the volatility of the underlying foreign currency base. The fair values of
interest rate options on the reporting date are assessed by generally accepted models, such as Buildings /Leasehold improvements 5 – 50
the “Markov functional model”. Technical equipment and machinery as well as other equipment and furniture and fittings 2 – 10
Leases The recoverable amount is determined on the basis of fair value less costs to sell, which are cal-
If substantially all risks and rewards associated with an asset are transferred to the Group under culated with 1% of the fair value. The fair value is determined in discounting the royalty savings
finance lease agreements, the asset less accumulated depreciation and the corresponding liabil- after tax and adding a tax amortisation benefit, resulting from the amortisation of the acquired
ity are recognised at the fair value of the asset or the lower net present value of the minimum asset (“relief-from-royalty method”). These calculations use projections of net sales related
lease payments. Minimum lease payments are apportioned between the finance charge and the royalty savings, based on financial planning which covers a period of five years in total. Royalty
reduction of the outstanding liability. The finance expense is allocated to each period during the savings beyond this period are extrapolated using steady growth rates of 1.7% (2007: 2.5%).
lease term so as to produce a constant periodic interest rate on the remaining balance of the The growth rates do not exceed the long-term average growth rate of the business to which the
liability. trademarks are allocated.
Under operating lease agreements, rent expenses are recognised on a straight-line basis over The discount rate is based on a weighted average cost of capital calculation considering a five-
the term of the lease. year average debt /equity structure and financing costs including the Group’s major competitors.
The discount rate used is an after-tax rate and reflects the specific equity and country risk. The
applied discount rate is 8.3% (2007: 7.5%).
If expenditures for internally generated intangible assets qualify for recognition, these are not
expensed as incurred.
Goodwill has been allocated for impairment testing purposes to three cash-generating units. Financial assets
The Group’s cash-generating units are identified according to major brand of operations in line All purchases and sales of financial assets are recognised on the trade date. Costs of purchases
with the internal management approach. The adidas Group has thus defined the three segments include transaction costs. If the fair value of available-for-sale financial assets (i.e. non-
adidas, Reebok and TaylorMade-adidas Golf as the relevant cash-generating units. derivative financial assets which are not allocable under another category of IAS 39) can be
measured reliably, they are subsequently carried at fair value. Realised and unrealised gains
The carrying amounts of acquired goodwill are allocated to the cash-generating units as follows: and losses arising from changes in the fair value of financial assets are included in the income
statement for the period in which they arise, except for available-for-sale financial assets
where unrealised gains and losses are recognised in equity unless they are impaired.
Allocation of goodwill
€ in millions
Borrowings and other liabilities
Borrowings and other liabilities are recognised at fair value using the “effective interest method”,
net of transaction costs incurred. In subsequent periods, long-term borrowings are stated at
TaylorMade- Total
adidas Reebok adidas Golf goodwill amortised cost using the “effective interest method”. Any difference between proceeds (net of
transaction costs) and the redemption value is recognised in the income statement over the term
January 1, 2008 748 406 282 1,436 of the borrowing.
Additions 18 — — 18
Currency effects 24 19 2 45 The fair value of the liability component of the Group’s convertible bond was determined using
December 31, 2008 790 425 284 1,499 a market interest rate for a comparable straight bond at time of issuance. This amount is pre-
sented as part of long-term borrowings on an amortised cost basis until conversion or maturity
of the bond. The remaining portion is included in shareholders’ equity where the value of the
In 2008, the adidas Group determined that no impairment of goodwill was necessary. equity component is not changed in subsequent periods.
The recoverable amount of a cash-generating unit is determined on the basis of value in use. Accrued liabilities and provisions
This calculation uses cash flow projections based on the financial planning covering a five-year Provisions are recognised where a present obligation (legal or constructive) to third parties has
period in total in the case of the cash-generating unit Reebok and a four-year period in total in been incurred which is likely to lead to an outflow of resources, and where the timing or amount
the case of the cash-generating units adidas and TaylorMade-adidas Golf. Cash flows beyond is uncertain. Non-current provisions are discounted if the effect of discounting is material.
this period are extrapolated using steady growth rates of 1.7% (2007: 2.0% to 2.5%). These
growth rates do not exceed the long-term average growth rate of the business in which each With respect to accrued liabilities, the timing and amount of an outflow of resources is not
cash-generating unit operates. uncertain.
Discount rates are based on a weighted average cost of capital calculation considering a five-
year average debt /equity structure and financing costs including the Group’s major competitors
of each cash-generating unit. The discount rates used are after-tax rates and reflect the specific
equity and country risk of the relevant cash-generating unit. The applied discount rates for
specific cash-generating units are between 8.2% and 8.8% (2007: between 7.5% and 8.4%).
Interest The key assumptions concerning the future and other key sources of estimation uncertainty
Interest is recognised as income or expense as incurred (using the “effective interest method”) at the balance sheet date which have a significant risk of causing a material adjustment to
and is not capitalised. the carrying amounts of assets and liabilities within the next financial year are outlined in the
respective Notes, in particular goodwill see Note 11, trademarks see Note 12 , provisions
Income taxes see Note 16 , pensions see Note 18 , derivatives see Note 23 as well as deferred taxes
Current income taxes are computed in accordance with the applicable taxation rules established see Note 28 .
in the countries in which the Group operates.
The Group computes deferred taxes for all temporary differences between the carrying amount
and the tax base of its assets and liabilities and tax loss carry-forwards. As it is not permitted
to recognise a deferred tax liability for goodwill, the Group does not compute any deferred taxes
thereon.
Furthermore, the previous adidas and Reebok warehouses in the UK have been classified as
assets held-for-sale due to the proposed move of storage and distribution facilities to a new
shared warehouse (December 31, 2008: € 5 million; December 31, 2007: € 10 million). In 2008, Liabilities classified as held-for-sale
impairment losses in the amount of € 2 million were recognised in other operating expenses. € in millions
Furthermore, the assets lost in value due to the devaluation of the British pound. The selling
process commenced in April 2007 and contract finalisation is expected in 2009.
Dec. 31, 2008 Dec. 31, 2007
In addition, a Rockport warehouse in the USA is classified as held-for-sale as a result of the Accounts payable and other current liabilities 2 2
intention to sell and the existence of a purchase offer (€ 4 million). Contract finalisation is Accrued liabilities and provisions 1 2
expected in 2009. Deferred tax liabilities 3 —
Total 6 4
Due to the intention to sell and several existing letters of intent, Gekko Brands, LLC, which was
acquired within the scope of the acquisition of Ashworth, Inc., is classified as a disposal group
held-for-sale. The selling process commenced in December 2008, and contract finalisation is
expected in 2009. At December 31, 2008, this disposal group contains assets of € 10 million less
liabilities of € 6 million.
Reebok Productos Esportivos Brasil Ltda.’s net assets at the acquisition date
Saxon Athletic Manufacturing, Inc.’s net assets at the acquisition date € in millions
€ in millions
Pre-
acquisition Recognised
Pre- carrying Fair value values on
acquisition Recognised amounts adjustments acquisition
carrying Fair value values on
amounts adjustments acquisition
Inventories 2 — 2
Accounts receivable 1 — 1 Other current assets 0 — 0
Inventories 1 — 1 Net assets 2 — 2
Borrowings (1) — (1) Goodwill arising on acquisition —
Other current liabilities (1) — (1) Purchase price settled in cash 2
Net assets 0 — 0 Cash and cash equivalents acquired —
Goodwill arising on acquisition 2 Cash outflow on acquisition 2
Purchase price settled in cash 2
Cash and cash equivalents acquired —
Cash outflow on acquisition 2 Pre-acquisition carrying amounts were based on applicable IFRS standards.
If this acquisition had occurred on January 1, 2008, total Group net sales would have been
Pre-acquisition carrying amounts were based on applicable IFRS standards. € 10.8 billion and net income would have been € 641 million for the year ending December 31,
2008.
The acquired subsidiary contributed € 0 million to the Group’s net income for the period from
February to December 2008. The acquired subsidiary contributed € 6 million to the Group’s net income for the period from
April to December 2008.
Effective January 10, 2008, adidas AG acquired an additional 22.5% of the shares of its subsidiary
for the adidas brand in Greece, adidas Hellas A.E., Thessaloniki (Greece), for a purchase price in
the amount of € 6 million, thus taking its controlling stake to over 95%.
If this acquisition had occurred on January 1, 2008, total Group net sales would have been
€ 10.9 billion and net income would have been € 611 million for the year ending December 31,
Pre-acquisition carrying amounts were based on applicable IFRS standards. 2008.
The following valuation methods for the acquired assets were applied: Mainly due to restructuring costs and other one-time expenses, the acquired subsidiary con-
tributed losses of € 13 million to the Group’s total operating result since the inclusion in the
— Inventories: The “pro rata basis valuation” was applied for estimating the fair value of consolidated financial statements. Contribution to net income cannot be disclosed due to the
acquired inventories. Realised margins were added to the book values of acquired inventories. integration of financing and tax activities.
Subsequently, the costs for completion for selling, advertising and general administration as
well as a reasonable profit allowance were deducted. On November 9, 2007, the Group acquired the assets and liabilities of Mitchell & Ness, Inc.,
based in Philadelphia /Pennsylvania (USA), as part of an asset deal. The purchase price of
€ 2 million was paid for inventories (€ 1 million), accounts receivable (€ 1 million), accounts
payable (negative € 3 million) and remaining other intangible assets (€ 3 million) based on a
purchase price allocation.
7 Accounts receivable
Accounts receivable consist mainly of the currencies US dollar, euro, Japanese yen and British
pound and are as follows: Accounts receivable past due but not impaired
€ in millions
Accounts receivable
past due
past due past due past due past due more than
€ in millions 1 – 30 days 31 – 60 days 61 – 90 days 91 – 180 days 180 days
Dec. 31, 2008 Dec. 31, 2007 Dec. 31, 2008 163 77 20 10 10
Dec. 31, 2007 166 64 15 12 6
Accounts receivable, gross 1,743 1,570
Less: allowance for doubtful accounts 119 111
Accounts receivable, net 1,624 1,459 With respect to accounts receivable past due but not impaired, based on credit history and
current credit ratings, there are no indications that customers will not be able to meet their
obligations.
Further, no indications of default are recognisable for accounts receivable that are neither past
due nor impaired.
9 Other current assets Depreciation expenses were € 165 million and € 145 million for the years ending December 31,
Other current assets consist of the following: 2008 and 2007, respectively see also Note 25 . Impairment losses which are included within
depreciation and amortisation (shown in other operating expenses see also Note 25) were
€ 6 million and € 3 million for the years ending December 31, 2008 and 2007, respectively. These
Other current assets are related to assets within other equipment, furniture and fittings, mainly in the Group’s
€ in millions
own-retail activities, for which contrary to expectations there will be an insufficient flow of future
economic benefits.
Dec. 31, 2008 Dec. 31, 2007
In 2008, assets amounting to € 41 million and € 3 million in connection with the unrealised sale
Prepaid expenses 292 274 of disposal groups see Note 3 were transferred from “assets classified as held-for-sale” to
Tax receivables other than income taxes 82 68 “land and buildings” and “other equipment, furniture and fittings” within property, plant and
Financial assets equipment respectively.
Interest rate derivatives 1 —
Currency options 22 23 The reclassified depreciation expenses consist of depreciation subsequently reflected see also
Forward contracts 156 11 Note 3 and the formerly reclassified depreciation which has now been taken back.
Security deposits 66 38
Other financial assets 43 50 Contractual commitments for the acquisition of property, plant and equipment mainly relate to
Sundry 129 67 building projects in Herzogenaurach amounting to € 32 million.
Other current assets, gross 791 531 For details see Statement of Movements of Tangible and Intangible Assets and Financial Assets (Attach-
Less: allowance 2 2 ment I to these Notes).
Other current assets, net 789 529
Dec. 31, 2008 Dec. 31, 2007 Trademarks, gross 1,390 1,291
Less: accumulated amortisation 0 —
Goodwill, gross 1,499 1,436 Trademarks, net 1,390 1,291
Less: impairment — — Software, patents and concessions, gross 517 441
Goodwill, net 1,499 1,436 Less: accumulated amortisation 313 247
Other intangible assets, net 204 194
Trademarks and other intangible assets, net 1,594 1,485
The majority of goodwill which primarily relates to the acquisition of the Reebok business in 2006
is denominated in US dollars. A positive currency translation effect of € 45 million and negative
€ 80 million was recorded for the years ending December 31, 2008 and 2007, respectively. Intangible asset amortisation expenses were € 61 million and € 64 million for the years ending
December 31, 2008 and 2007, respectively see also Note 25 .
From January 1, 2005, goodwill is tested annually for impairment. There was no impairment
expense for the years ending December 31, 2008 and 2007. The Group determines whether At December 31, 2008, trademarks related to the Reebok acquisition as well as the Ashworth
goodwill impairment is necessary at least on an annual basis. This requires an estimation of the acquisition with indefinite useful lives amounted to € 1,359 million (December 31, 2007:
value in use of the cash-generating units to which the goodwill is allocated. Estimating the value € 1,285 million) and € 21 million. They were estimated to be indefinite due to the high degree of
in use requires the Group to make an estimate of the expected future cash flows from the cash- brand recognition as well as their long-standing heritage. The trademarks are allocated to the
generating unit and also to choose a suitable discount rate in order to calculate the present value cash-generating units Reebok as well as TaylorMade-adidas Golf.
of those cash flows.
The Group determines whether trademarks with indefinite useful life are impaired at least on
Future changes in expected cash flows and discount rates may lead to impairments of the an annual basis. This requires an estimation of the fair value less costs to sell of the trade-
accounted goodwill in the future. marks. Estimating the fair value less costs to sell requires the Group to make an estimate of the
For details see Statement of Movements of Tangible and Intangible Assets and Financial Assets (Attach- expected future brand-specific sales and appropriate arm’s length royalty rates from the cash-
ment I to these Notes). generating unit and also to choose a suitable discount rate in order to calculate the present value
of those cash flows. There was no impairment expense for the years ending December 31, 2008
and 2007.
Future changes in expected cash flows and discount rates may lead to impairments of the
accounted trademarks in the future.
For details see Statement of Movements of Tangible and Intangible Assets and Financial Assets (Attach-
ment I to these Notes).
Fair value adjustments from impairment losses amounted to € 0 million and € 4 million for the The convertible bond is not callable by the issuer until October 2009. It is callable thereafter,
years ending December 31, 2008 and 2007, respectively. In the prior year, these are related to subject to a 130% trigger between October 2009 and October 2012 and subject to a 115% trigger
impairments of other financial assets to cover anticipated risks of default see also Note 27. between October 2012 and 2015. The convertible bond is unconditionally callable thereafter.
For details see Statement of Movements of Tangible and Intangible Assets and Financial Assets (Attach- Investors have the right to put at par the bond in October 2009, October 2012 and October 2015.
ment I to these Notes).
The fair values of the liability component and the equity conversion component were determined
on the issuance of the bond. The fair value of the liability component, included in long-term
14 Other non-current assets borrowings, was calculated using a market interest rate of approximately 4.6% for an equivalent
Other non-current assets consist of the following: straight bond without conversion rights. Due to the retrospective application of the amendment
to IAS 39 and IAS 32, the liability and equity split of the convertible bond changed. As a result,
the liability component as at the date of issuance increased by € 71.1 million with an equivalent
Other non-current assets decrease in equity. The amount of the equity component, which is included in equity in the capital
€ in millions
reserve, amounts to € 44.1 million (less transaction costs of € 0.9 million). The liability compo-
nent is valued using the “effective interest method”.
Dec. 31, 2008 Dec. 31, 2007
The adidas AG share first traded above 110% (€ 28.05) of the conversion price of € 25.50
Prepaid expenses 108 105 on more than 20 trading days within the last 30 trading days in the fourth quarter of 2004.
Financial assets Consequently, bondholders have had the right to convert their convertible bonds into equity
Interest rate derivatives 8 4 since January 1, 2005. An early redemption or conversion of the convertible bond is currently
Currency options 19 3 not expected.
Forward contracts 7 —
Security deposits 23 22
Other financial assets 2 1
Sundry 13 12
Other non-current assets 180 147
Prepaid expenses mainly include prepayments for long-term promotional contracts and service
contracts see also Note 32 and Note 22 .
Borrowings are denominated in a variety of currencies in which the Group conducts its business.
The largest portions of effective gross borrowings (before liquidity swaps for cash management Gross borrowings as at December 31, 2008
purposes) as at December 31, 2008 are denominated in euros (2008: 57%; 2007: 51%) and € in millions
US dollars (2008: 39%; 2007: 45%).
Between Between
Month-end weighted average interest rates on borrowings in all currencies ranged from 4.8% Up to 1 year 1 and 3 years 3 and 5 years After 5 years Total
to 5.4% in 2008 and from 5.2% to 5.6% in 2007.
Bank borrowings incl. commercial paper — — 748 — 748
As at December 31, 2008, the Group had cash credit lines and other long-term financing Private placements 404 462 332 234 1,432
arrangements totalling € 6.5 billion (2007: € 6.3 billion); thereof unused credit lines accounted Convertible bond 393 — — — 393
for € 3.9 billion (2007: € 4.1 billion). In addition, the Group had separate lines for the issuance Total 797 462 1,080 234 2,573
of letters of credit in an amount of approximately € 0.3 billion (2007: € 0.2 billion).
The Group’s outstanding financings are unsecured. In accordance with the long-term funding strategy, the bank borrowings and commercial paper
with short-term maturities are also classified as long-term borrowings as they represent per-
The private placement and convertible bond documentation each contain a negative-pledge manent funding volumes that are covered by the committed long-term syndicated loan.
clause. Additionally, the private placement documentation contains minimum equity covenants
and net loss covenants. As at December 31, 2008, and December 31, 2007, actual shareholders’
equity was well above the amount of the minimum equity covenant. Likewise, the relevant Gross borrowings as at December 31, 2007
amount of net income clearly exceeded net loss covenants. € in millions
Between Between
Up to 1 year 1 and 3 years 3 and 5 years After 5 years Total
The private placements with a maturity of up to one year are shown as short-term borrowings in
the balance sheet as at December 31, 2008. The practice of shifting short-term private place-
ments to long-term borrowings due to syndicated loan refinancing ceased in 2008. The prior year
end amount has been reclassified in order to ensure comparability.
The borrowings related to our outstanding convertible bond changed in value, reflecting the
accruing interest on the debt component in accordance with IFRS requirements.
Currency Changes in
translation companies Thereof
Jan. 1, 2008 differences Usage Reversals consolidated Additions Transfers Dec. 31, 2008 non-current
Marketing 40 2 20 — — 32 — 54 —
Employee benefits 48 1 27 1 1 20 — 42 13
Returns, allowances, warranty 126 6 89 7 — 78 — 114 1
Taxes, other than income taxes 9 — 4 — — 7 1 13 —
Other provisions 131 — 45 6 6 38 (1) 123 14
Total provisions 354 9 185 14 7 175 — 346 28
Goods and services not yet invoiced 320 12 236 8 — 239 — 327 —
Marketing 147 (3) 90 3 — 104 — 155 4
Payroll and commissions 168 — 100 5 — 94 — 157 23
Other accruals 109 2 44 1 — 22 — 88 10
Total accrued liabilities 744 11 470 17 — 459 — 727 37
Total accrued liabilities and provisions 1,098 20 655 31 7 634 — 1,073 65
Marketing provisions mainly consist of provisions for promotion contracts. Marketing accrued liabilities mainly consist of accruals for distribution, such as discounts,
rebates and sales commissions.
Provisions for employee benefits mainly consist of provisions for profit-sharing plans. With
regard to provisions for early retirement, claims for reimbursement in an amount of € 2 million Accrued liabilities for payroll and commissions mainly consist of accruals for outstanding salary
(December 31, 2007: € 3 million) are shown under other non-current assets. payments, such as bonuses and overtime, as well as outstanding vacation.
Other provisions mainly include items not otherwise allocated as well as anticipated losses from Other accrued liabilities mainly include items not otherwise allocated and also accruals for
purchases and other transactions, and contingent losses from pending lawsuits. interest.
Information regarding forward contracts as well as currency options and interest rate derivatives
is also included in these Notes see Note 23 . Defined contribution plans
The total expense for defined contribution plans amounted to € 33 million in 2008 (2007:
€ 39 million).
Actuarial assumptions
in %
The actuarial assumptions for employee turnover and mortality are based on empirical data,
2008 2007
the latter for Germany on the Heubeck 2005 G mortality tables.
Defined benefit obligation as at January 1 171 170
Since January 1, 2005, due to application of the amendment to IAS 19 “Employee Benefits” Currency translation differences (4) 2
issued in December 2004, the Group recognises actuarial gains or losses arising in defined Current service cost 12 12
benefit plans during the financial year immediately outside the income statement in the state- Interest cost 9 7
ment of recognised income and expense (SoRIE). The actuarial gain recognised in this statement Contribution by plan participants 1 —
for 2008 amounts to € 3 million (2007: € 18 million). The cumulative recognised actuarial losses Pensions paid (6) (6)
amounted to € 9 million (2007: € 12 million) see also Note 21. Actuarial gain (11) (14)
Defined benefit obligation as at December 31 172 171
The expected return on plan assets assumption is set separately for the various benefit plans.
The return on plan assets for the funded benefit plan in Germany is based on the overall surplus
sharing of the insurance company. Status of funded and unfunded obligations
€ in millions
The calculations of assets and liabilities recognised from defined benefit plans are based upon
Of the total pension expenses, an amount of € 12 million (2007: € 12 million) relates to employ- statistical and actuarial calculations. In particular, the present value of the defined benefit
ees in Germany. The pension expense is recorded within the operating expenses whereas the obligation is impacted by assumptions on discount rates used to arrive at the present value
production-related part thereof is recognised within the cost of sales. of future pension liabilities, and assumptions on future increases in salaries and benefits.
Furthermore, the Group’s independent actuaries use statistically based assumptions covering
areas such as future participant plan withdrawals and estimates on life expectancy. The actuarial
assumptions used may differ materially from actual results due to changes in interest rates,
market and economic conditions, higher or lower withdrawal rates, or longer or shorter life
spans of participants and other changes in the factors being assessed. These differences could
impact the assets or liabilities recognised in the balance sheet in future periods.
2008 2007
Other non-current liabilities
Fair value of plan assets at January 1 60 46 € in millions
Currency translation differences (5) (3)
Pensions paid (2) (1) Dec. 31, 2008 Dec. 31, 2007
Contributions by the employer 3 10
Contributions by plan participants 1 — Finance lease obligations 2 3
Actuarial (loss) /gain (8) 4 Liabilities due to personnel 10 6
Expected return on plan assets 4 4 Deferred income 17 14
Fair value of plan assets at December 31 53 60 Financial liabilities
Interest rate derivatives 9 10
Currency options 13 16
In 2009, the expected payments consisting of benefits paid immediately by the company and Forward contracts 1 16
contributions paid by the company into plan assets amount to € 8 million. In 2008, the actual Other financial liabilities — 1
return on plan assets is negative € 4 million (2007: € 7 million). Sundry — 3
Other non-current liabilities 52 69
Historical development These subsidiaries were partly acquired in connection with the acquisition of the Reebok busi-
€ in millions
ness and partly through purchases in 2008.
In accordance with IAS 32, the following minority interests are not reported within minority inter-
Dec. 31, 2008 Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
ests: GEV Grundstücksgesellschaft Herzogenaurach mbH & Co. KG (Germany), as the company
Present value of defined benefit obligation 172 171 170 131 118 is a limited partnership, and adidas Hellas A.E. (Greece), as this minority is held with a put
Fair value of plan assets 53 60 46 — — option. The fair value of these minorities is shown within other liabilities. The result for these
Thereof: defined benefit assets (5) (4) (2) — — minorities is reported within financial expenses.
Deficit in plan 124 115 126 131 118
Experience adjustments 2 (1) 4 1 —
Difference between expected and actual
return on plan assets (8) 4 — — —
On July 2, 2008, 5,511,023 treasury shares were cancelled. These shares had been repurchased
Number of no-par-value shares issued as at Jan. 1, 2008 203,628,960
based on the authorisation to repurchase adidas AG shares granted to the Executive Board
Capital increase and issuance of no-par-value shares on January 15, 2008
by the Annual General Meeting held on May 10, 2007. Hence, the stock capital was reduced by
based on MSOP exercises in November 2007 + 16,000 203,644,960
€ 5,511,023 from € 203,644,960 to € 198,133,937, divided into 198,133,937 shares. Consequently, Capital reduction from cancellation of 5,511,023 treasury shares
retained earnings decreased by € 224,437,927.18. on July 2, 2008 based on the authorisation to repurchase adidas AG shares
granted on May 10, 2007 (5,511,023) 198,133,937
On July 4, 2008, the stock capital increased to a total of € 198,178,337 divided into 198,178,337 Capital increase and issuance of no-par-value shares on July 4, 2008
shares, as a result of the exercise of a total of 11,100 stock options in May 2008 and the issuance based on MSOP exercises in May 2008 + 44,400 198,178,337
of 44,400 shares associated with the Company’s Management Share Option Plan (MSOP). On Capital increase and issuance of no-par-value shares on October 6, 2008
October 6, 2008, the stock capital again increased as a result of the exercise of a total of 2,100 based on MSOP exercises in August 2008 + 8,400 198,186,737
stock options in August 2008 and the issuance of 8,400 shares associated with the Company’s Capital reduction from cancellation of 4,671,225 treasury shares on
Management Share Option Plan (MSOP). December 15, 2008 based on the authorisation to repurchase adidas AG
shares granted on May 8, 2008 (4,671,225) 193,515,512
Number of no-par-value shares issued as at Dec. 31, 2008 193,515,512
On December 15, 2008, 4,671,225 treasury shares were cancelled. These shares had been repur-
chased based on the authorisation to repurchase adidas AG shares granted to the Executive
Board by the Annual General Meeting held on May 8, 2008. Hence, the stock capital was reduced
by € 4,671,225 from €198,186,737 to € 193,515,512, divided into 193,515,512 shares. Conse- Authorised Capital
quently, retained earnings decreased by € 174,766,717.89. The Executive Board of adidas AG did not make use of the existing amounts of Authorised Capital
of up to € 96,062,500 corresponding to 96,062,500 shares in 2008 or in the period beyond the
At the balance sheet date, the stock capital of adidas AG amounted to a total of € 193,515,512 balance sheet date up to and including February 16, 2009.
and was divided into 193,515,512 shares. The stock capital is fully paid in.
As at the balance sheet date, the Authorised Capital of the Company is set out in § 4 sections 2,
Except for the cancellation of shares on July 2, 2008, which had already been entered on August 3 and 4 of the Articles of Association, pursuant to which the Executive Board is entitled, subject
12, 2008, the corresponding adjustment of the amount of stock capital resulting from the above to Supervisory Board approval, to increase the stock capital
transactions up to and including December 31, 2008 has been entered into the Commercial
Register on February 11, 2009. until June 19, 2010
— by issuing new shares against contributions in cash once or several times by no more than
There were no other changes in stock capital since the balance sheet date. On February 16, a maximum of € 64,062,500 and, subject to Supervisory Board approval, to exclude fractional
2009, the stock capital of adidas AG therefore amounted to € 193,515,512 and was divided into shares from shareholders’ subscription rights (Authorised Capital 2005 /I);
193,515,512 shares.
and until May 15, 2011
Each share grants one vote and, starting from the beginning of the year it was issued, is also — by issuing new shares against contributions in cash or in kind once or several times by no
entitled to a dividend. Treasury shares held directly or indirectly are not entitled to dividend more than a maximum of € 12,000,000 and, subject to Supervisory Board approval, to exclude
payment in accordance with § 71 b German Stock Corporation Act (Aktiengesetz – AktG). On shareholders’ subscription rights (Authorised Capital 2008);
February 16, 2009, adidas AG did not hold any treasury shares.
Between January 30 and October 22, 2008, adidas AG repurchased an overall amount of Changes in the percentage of voting rights
10,182,248 shares at an average purchase price of € 40.21. This corresponds to 5% of the Pursuant to § 160 section 1 number 8 AktG, the contents of notifications which indicate that
stock capital of adidas AG at the date of initiation of the programme. The total buyback volume investments have exceeded or fallen below a certain threshold and which have been notified to
amounted to € 409,386,893.07 (excluding incidental purchasing costs). On October 22, 2008, the the Company in accordance with the German Securities Trading Act (Wertpapierhandelsgesetz –
share buyback programme was completed. WpHG) need to be disclosed.
On July 2, 2008, 5,511,023 treasury shares repurchased between January 30, 2008 and May 2, The contents of these notifications reflecting investments exceeding or falling below one of the
2008 on the basis of the authorisation granted on May 10, 2007, were cancelled, thus reducing thresholds set out in the WpHG are as follows:
the stock capital. Consequently, the stock capital of the Company was reduced by € 5,511,023
from € 203,644,960 to € 198,133,937. Invesco Ltd., London, United Kingdom, informed the Company on October 2, 2008 that:
Similarly, on December 15, 2008, 4,671,225 treasury shares repurchased between May 21, 2008 1) on September 30, 2008, the voting interest of Invesco Ltd., Atlanta, Georgia, USA, in adidas AG
and October 22, 2008 on the basis of the authorisation granted on May 8, 2008, were cancelled, fell below the threshold of 3% and amounted to 2.98% of the voting rights (5,894,813 shares) on
thus reducing the stock capital. Consequently, the stock capital of the Company was reduced by this date. All of these voting rights are attributable to Invesco Ltd. in accordance with § 22 section
€ 4,671,225 from € 198,186,737 to € 193,515,512. 1 sentence 1 number 6 WpHG in conjunction with § 22 section 1 sentence 2 WpHG.
Since all shares repurchased were cancelled, adidas AG did not hold any treasury shares on 2) on September 30, 2008, the voting interest of IVZ Callco Inc., Toronto, Canada, in adidas AG fell
February 16, 2009. below the threshold of 3% and amounted to 2.98% of the voting rights (5,894,813 shares) on this
date. All of these voting rights are attributable to IVZ Callco Inc. in accordance with § 22 section 1
Convertible bond sentence 1 number 6 WpHG in conjunction with § 22 sentence 2 WpHG.
adidas International Finance B.V. issued a convertible bond with a nominal value of € 400,000,000
on October 8, 2003 divided into 8,000 convertible bonds with a nominal value of € 50,000 each. 3) on September 30, 2008, the voting interest of AIM Canada Holdings Inc., Toronto, Canada, in
The convertible bond is due for repayment on October 8, 2018, if not previously repaid or adidas AG fell below the threshold of 3% and amounted to 2.98% of the voting rights (5,894,813
converted into adidas AG shares. adidas AG has assumed the unconditional and irrevocable shares) on this date. All of these voting rights are attributable to AIM Canada Holdings Inc. in
guarantee with respect to payments of all amounts payable under the convertible bond by accordance with § 22 section 1 sentence 1 number 6 WpHG in conjunction with § 22 section 1
sentence 2 WpHG.
Cumulative Total
Capital translation Hedging Other Retained shareholders’ Minority
Note Share capital reserve adjustments reserve reserves 1) earnings equity interests Total equity
Balance at December 31, 2006 204 737 (273) (20) (18) 2,199 2,828 8 2,836
Net income recognised directly in equity (237) (38) 10 (265) (0) (265)
Net income 551 551 4 555
Total recognised income and expense for the period (237) (38) 10 551 286 4 290
Balance at December 31, 2007 204 737 (510) (58) (8) 2,659 3,023 11 3,034
Total recognised income and expense for the period 78 149 2 642 871 2 873
Balance at December 31, 2008 194 338 (432) 91 (6) 3,202 3,386 14 3,400
Rounding differences may arise in percentages and totals.
The accompanying Notes are an integral part of these consolidated financial statements.
1) Reserves for actuarial gains /losses and share option plans.
The Group leases primarily retail stores as well as offices, warehouses and equipment. The Minimum lease payments for finance leases
contracts regarding these leases with expiration dates of between one and sixteen years partly € in millions
include renewal options and escalation clauses. Rent expenses, which partly depend on net
sales, amounted to € 422 million and € 337 million for the years ending December 31, 2008 and
Dec. 31, 2008 Dec. 31, 2007
2007, respectively.
Lease payments falling due:
Future minimum lease payments for minimum lease durations are as follows: Within 1 year 2 2
Between 1 and 5 years 2 3
After 5 years 1 1
Minimum lease payments for operating leases Total lease payments 5 6
€ in millions Less: estimated amount representing interest 0 1
Obligation under finance leases 5 5
Thereof falling due:
Dec. 31, 2008 Dec. 31, 2007
Within 1 year 2 2
Between 1 and 5 years 2 2
Within 1 year 213 212
After 5 years 1 1
Between 1 and 5 years 516 432
After 5 years 340 192
Total 1,069 836
Service arrangements
The Group has outsourced certain logistics and information technology functions, for which it
Finance leases has entered into long-term contracts. Financial commitments under these contracts mature as
The Group also leases various premises for administration, warehousing, research and develop- follows:
ment as well as production, which are classified as finance leases.
The net carrying amount of these assets of € 5 million and € 6 million was included in property, Financial commitments for service arrangements
plant and equipment as at December 31, 2008 and 2007, respectively. Interest expenses were € in millions
€ 2 million (2007: € 2 million) and depreciation expenses were € 1 million (2007: € 2 million) for
the year ending December 31, 2008.
Dec. 31, 2008 Dec. 31, 2007
Within 1 year 49 48
Between 1 and 5 years 48 62
After 5 years — —
Total 97 110
Carrying amounts of financial instruments as at December 31, 2008, according to categories of IAS 39 and their fair values
€ in millions
Assets
Cash and cash equivalents n. a. 244 244 244
Short-term financial assets FAHfT 141 141 141
Accounts receivable LaR 1,624 1,624 1,624
Other current assets
Derivatives being part of a hedge n. a. 147 146 1 147
Derivatives not being part of a hedge FAHfT 32 32 32
Other financial assets LaR 109 109 109
Long-term financial assets
Available-for-sale financial assets AfS 89 89 89
Loans LaR 7 7 7
Other non-current assets
Derivatives being part of a hedge n. a. 24 16 8 24
Derivatives not being part of a hedge FAHfT 10 10 10
Other financial assets LaR 25 25 25
Assets classified as held for sale LaR 2 2 2
Liabilities
Short-term borrowings
Private placements FLAC 404 404 407
Convertible bond FLAC 393 393 484
Accounts payable FLAC 1,218 1,218 1,218
Accrued liabilities and provisions FLAC 364 364 364
Other current liabilities
Derivatives being part of a hedge n. a. 36 36 36
Derivatives not being part of a hedge FLHfT 21 21 21
Finance lease obligations n. a. 2 2 2
Other financial liabilities FLAC 22 22 22
Long-term borrowings
Bank borrowings incl. commercial paper FLAC 748 748 748
Private placements FLAC 1,028 1,028 1,047
Convertible bond FLAC — — —
Other non-current liabilities
Derivatives being part of a hedge n. a. 9 7 2 9
Derivatives not being part of a hedge FLHfT 14 14 14
Finance lease obligations n. a. 3 3 3
Other financial liabilities FLAC — — —
Liabilities classified as held for sale FLAC 2 2 2
Thereof: aggregated by category according to IAS 39
Financial Assets at fair value through profit or loss 183
thereof: designated as such upon initial recognition (Fair Value Option – FVO) —
thereof: Held for Trading (FAHfT) 183
Loans and Receivables (LaR) 1,767
Available-for-Sale financial assets (AfS) 89
Financial Liabilities measured at Amortised Cost (FLAC) 4,179
Financial Liabilities at fair value through profit or loss Held for Trading (FLHfT) 35
Assets
Cash and cash equivalents n. a. 295 295 295
Short-term financial assets FAHfT 86 86 86
Accounts receivable LaR 1,459 1,459 1,459
Other current assets
Derivatives being part of a hedge n. a. 12 12 12
Derivatives not being part of a hedge FAHfT 22 22 22
Other financial assets LaR 88 88 88
Long-term financial assets
Available-for-sale financial assets AfS 92 92 92
Loans LaR 11 11 11
Other non-current assets
Derivatives being part of a hedge n. a. 7 7 7
Derivatives not being part of a hedge FAHfT 0 0 0
Other financial assets LaR 23 23 23
Assets classified as held for sale LaR 4 4 4
Liabilities
Short-term borrowings
Private placements FLAC 186 186 186
Convertible bond FLAC — — —
Accounts payable FLAC 849 849 849
Accrued liabilities and provisions FLAC 349 349 349
Other current liabilities
Derivatives being part of a hedge n. a. 72 72 72
Derivatives not being part of a hedge FLHfT 17 17 17
Finance lease obligations n. a. 2 2 2
Other financial liabilities FLAC 14 14 14
Long-term borrowings
Bank borrowings incl. commercial paper FLAC 198 198 198
Private placements FLAC 1,378 1,378 1,394
Convertible bond FLAC 384 384 810
Other non-current liabilities
Derivatives being part of a hedge n. a. 32 26 6 32
Derivatives not being part of a hedge FLHfT 10 10 10
Finance lease obligations n. a. 3 3 3
Other financial liabilities FLAC 1 1 1
Liabilities classified as held for sale FLAC 2 2 2
Thereof: aggregated by category according to IAS 39
Financial Assets at fair value through profit or loss 108
thereof: designated as such upon initial recognition (Fair Value Option – FVO) —
thereof: Held for Trading (FAHfT) 108
Loans and Receivables (LaR) 1,585
Available-for-Sale financial assets (AfS) 92
Financial Liabilities measured at Amortised Cost (FLAC) 3,361
Financial Liabilities at fair value through profit or loss Held for Trading (FLHfT) 27
Notional amounts of US dollar hedging instruments In order to determine the fair values of its derivatives that are not publicly traded, the adidas
€ in millions
Group uses generally accepted quantitative financial models based on market conditions pre-
vailing at the balance sheet date.
Dec. 31, 2008 Dec. 31, 2007
The fair values of the derivatives were determined applying the “zero method”. The “zero
Forward contracts 1,732 1,885 method” is a theoretical model for the determination of forward rates based on deposit and swap
Currency options 457 562 interest rates. An alternative method is the “par method” which uses actively traded forward
Total 2,189 2,447 rates that reflect market inefficiencies. A comparison of the fair valuation based on the alter-
native methods revealed no substantive differences.
Within 1 year 23 —
A total net fair value of € 111 million (2007: negative € 61 million) for forward contracts related Between 1 and 3 years 184 162
to hedging instruments falling under hedge accounting as per definition of IAS 39 was recorded Between 3 and 5 years 105 150
in hedging reserve. The remaining net fair value of € 9 million (2007: negative € 7 million) After 5 years 83 68
mainly related to liquidity swaps for cash management purposes and forward contracts hedging Total 395 380
intercompany dividend receivables was recorded in the income statement. The total fair value
of outstanding currency options related to cash flow hedges.
The above summary for 2008 includes the notional amount of two long-term US dollar interest
The fair value adjustments of outstanding cash flow hedges for forecasted sales will be reported rate swaps in an amount of € 83 million (2007: € 68 million resulting from one US dollar interest
in the income statement when the forecasted sales transactions are recorded. The vast majority rate swap), one long-term and one short-term cross-currency interest rate swap for an amount
of these transactions are forecasted to occur in 2009. As at December 31, 2008, inventories were of € 33 million (2007: € 33 million) and four long-term euro interest rate swaps for an amount of
adjusted by negative € 7 million as at December 31, 2008, which will be recognised in the income € 279 million (2007: € 279 million). Both cross-currency interest rate swaps and one long-term
statement in 2009. US dollar interest rate swap are classified as fair value hedges, while the four euro interest rate
swaps are classified as cash flow hedges.
All euro-denominated interest rate swaps qualify as cash flow hedges pursuant to IAS 39. They
relate to euro private placements with variable interest rates for a notional amount of € 279 mil-
lion (2007: € 279 million). The goal of these hedges is to lower exposure to increasing short-term
euro interest rates. The negative fair value of € 6 million (2007: negative € 1 million) was cred-
ited in hedging reserves.
Total depreciation and amortisation expense for tangible and intangible assets (excluding Personnel expenses
goodwill) was € 234 million and € 211 million for the years ending December 31, 2008 and € in millions
2007, respectively. Thereof, € 6 million and € 7 million were recorded within the cost of sales
as they are directly attributable to the production costs of goods sold.
Year ending Year ending
Dec. 31, 2008 Dec. 31, 2007
Marketing working budget 1,429 1,378 Personnel expenses which are directly attributable to the production costs of goods are included
Marketing overhead 1) 376 327 within the cost of sales.
Sales force 1) 1,179 1,045
Logistics 1) 565 535
Research and development 1) 81 84
Central expenses for finance and administration divisions 1) 748 746
Total 4,378 4,115
Thereof:
Depreciation and amortisation 228 204
1) Including personnel and administration expenses.
Interest income /expense from financial instruments at fair value through profit or loss mainly
Financial income includes interest payments from investment funds as well as net interest payments from inter-
€ in millions
est derivatives not being part of a hedging relationship. Unrealised gains /losses from fair value
measurement of such financial assets are shown in other financial income or expenses.
Year ending Year ending
Dec. 31, 2008 Dec. 31, 2007 Interest expense on financial instruments measured at amortised cost mainly includes interest
on borrowings and effects from using the “effective interest method”.
Interest income from financial instruments measured at amortised cost 30 23
Interest income from financial instruments at fair value through profit or loss 7 4 Interest expense on provisions and non-financial liabilities particularly includes effects from
Interest income from non-financial assets — — measurement of provisions at present value and interest on non-financial liabilities such as tax
Net foreign exchange gains — 7 payables.
Fair value gains from available-for-sale investments — —
Other 0 2
Other financial expenses include impairment losses on other financial assets amounting to
Financial income 37 36
€ 0 million and € 4 million for the years ending December 31, 2008 and 2007, respectively. Also
included in other financial expenses are minority interests, which are not recorded in equity
according to IAS 32.
Financial expenses
€ in millions
Information regarding the Group’s available-for-sale investments, borrowings and financial
instruments is also included in these Notes see Notes 6, 13, 15 and 23 .
2008 2007
Income tax expenses The line “changes in tax rates” reflects changes enacted in German and non-German tax rates
€ in millions
which are utilised in the calculation of deferred taxes. In 2007, the total change related mainly to
a UK tax rate reduction effective in 2008.
Year ending Year ending
Dec. 31, 2008 Dec. 31, 2007
2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
Net sales to third parties 7,821 7,113 2,148 2,333 812 804 18 49 10,799 10,299
Gross profit 3,802 3,370 795 902 359 360 300 250 5,256 4,882
in % of net sales 48.6% 47.4% 37.0% 38.7% 44.3% 44.7% — — 48.7% 47.4%
Operating profit 1,098 920 (7) 109 78 65 (99) (145) 1,070 949
in % of net sales 14.0% 12.9% (0.3)% 4.7% 9.6% 8.1% — — 9.9% 9.2%
Assets 3,872 3,329 3,033 2,913 748 629 1,880 1,454 9,533 8,325
Liabilities 1,041 900 355 421 127 106 4,610 3,865 6,133 5,292
Capital expenditure 189 150 53 57 15 12 123 70 380 289
Capital expenditure from acquisitions of subsidiaries 27 — — — 59 — — — 86 —
Amortisation and depreciation 117 104 60 60 11 12 33 25 221 201
Impairment 5 2 1 1 — — — — 6 3
2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
Net sales to third parties 4,665 4,369 2,520 2,929 2,662 2,254 893 657 59 89 10,799 10,299
Assets 2,319 1,819 1,659 1,489 962 772 547 285 4,046 3,960 9,533 8,325
Capital expenditure 102 105 45 34 61 49 29 10 143 91 380 289
Capital expenditure from
acquisitions of subsidiaries — — 86 — — — — — — — 86 —
Region Europe also includes Middle East and Africa, Region Asia also includes the Pacific region.
Other financial commitments A two-year vesting period and a term of approximately seven years upon their respective issue
The Group has other financial commitments for promotion and advertising contracts, which applies for the stock options.
mature as follows:
Commitments with respect to advertising and promotion maturing after five years have remain-
ing terms of up to 14 years from December 31, 2008.
Information regarding commitments under lease and service contracts is also included in these
Notes see Note 22 .
Litigation
The Group is currently engaged in various lawsuits resulting from the normal course of business,
mainly in connection with license and distribution agreements as well as competition issues.
The risks regarding these lawsuits are covered by provisions when a reliable estimate of the
amount of the obligation can be made see Note 16 . In the opinion of Management, the ultimate
liabilities resulting from such claims will not materially affect the consolidated financial position
of the Group.
Tranche I (1999) Tranche II (2000) Tranche III (2001) Tranche IV (2002) Tranche V (2003)
The remaining contractual lives for stock options outstanding at the end of the period are pre- The stock options may only be exercised against payment of the exercise price. The exercise
sented as follows: Tranche IV (2002) until July 2009 and Tranche V (2003) until July 2010. price corresponds to the arithmetical mean of the closing price of the adidas AG share over
the last 20 trading days of the respective exercise period, less a discount, based on the extent
For stock options outstanding at the end of the period it is not possible to disclose the range of to which the share price at exercise exceeded the absolute and relative performance hurdles
exercise prices because they are dependent on future share price development. outlined above. In any case, the exercise price shall be at least the lowest issue price as stated in
§ 9 section 1 of the German Stock Corporation Act (AktG), currently € 1.00 (i.e. € 4.00 per option).
No stock options were issued during the year under review.
Option terms and conditions stipulate that the stock options may be used for existing common
Stock options may only be exercised subject to the attainment of at least one of the following shares in lieu of new shares from the contingent capital, or in the place of common shares the
performance objectives: discount is paid in cash.
(1) Absolute Performance: During the period between the issuance and exercise of the stock The new shares participate in profits from the beginning of the year in which they are issued.
options, the stock market price for the adidas AG share – calculated upon the basis of the “total
shareholder return approach” – has increased by an annual average rate of at least 8%.
(2) Relative Performance: During the same period, the stock market price for the adidas AG
share must have developed by an annual average of 1% more favourably than the stock market
prices of a basket of global competitors of the adidas Group and in absolute terms may not
have fallen.
Employees In 2008, former members of the Executive Board received pension payments totalling € 1.7 million
(2007: € 1.7 million).
Pension provisions for pension obligations relating to former members of the Executive Board
Year ending Year ending
Dec. 31, 2008 Dec. 31, 2007 amount in total to € 36.4 million (2007: € 37.6 million).
Own retail 16,071 11,180 No members of the Executive Board were granted loans in 2008.
Sales 4,133 4,065
Logistics 5,395 4,550 Members of the Executive Board have not been granted any stock options since 2003. In 2008,
Marketing 3,308 2,842 current and former members of the Executive Board exercised zero stock options (2007: 2,800).
Central functions and administration 3,160 2,929 Details of the Management Share Option Plan are also included in these Notes see Note 33 .
Production 2,118 1,910
Research and development 1,058 973
Further information on disclosures according to § 314 section 1 no. 6a HGB (German commercial
Information technology 886 769
law) is provided in the Compensation Report see Compensation Report, p. 030 .
Total 36,129 29,218
Effective October 1, 2008, KPMG Switzerland and KPMG Spain are part of KPMG Europe LLP
and are thus affiliated companies of KPMG Germany as defined under § 271 section 2 HGB. The 36 Events after the balance sheet date
disclosure requirement for audit and accounting services fees provided by KPMG Switzerland
and KPMG Spain relates to services rendered after September 30, 2008. Group-specific subsequent events
Effective January 1, 2009, the adidas Group acquired the remaining 25% of shares of Reebok’s
In 2008, adidas AG recorded € 1.2 million (2007: € 1.2 million) as expense for the professional subsidiary in Spain, Reebok Spain S.A., Alicante.
service fee for the auditor of the annual and consolidated financial statements.
Effective January 23, 2009, the adidas Group acquired the remaining 5% of shares of its
Expenses for tax consultancy services provided by the auditor, for other confirmation services subsidiary in Greece, adidas Hellas A.E., Thessaloniki.
provided by the auditor and for other services provided by the auditor amounted to € 0.2 million
(2007: € 0.1 million), € 0.0 million (2007: € 0.0 million) and € 0.1 million (2007: € 0.5 million), Date of authorisation for issue
respectively.
The Executive Board of adidas AG approved the consolidated financial statements for submission
Remuneration of the Supervisory Board and the Executive Board of adidas AG to the Supervisory Board on February 16, 2009. It is the Supervisory Board’s task to examine the
Supervisory Board consolidated financial statements and give their approval and authorisation for issue.
Pursuant to the Articles of Association, the Supervisory Board members’ fixed annual payment
amounted to € 0.9 million (2007: € 0.3 million). Herzogenaurach, February 16, 2009
The Executive Board of adidas AG
No members of the Supervisory Board were granted loans in 2008.
Software, patents
Goodwill Trademarks and concessions Total intangible assets Land and buildings
Acquisition cost
January 1, 2007 1,516 1,454 447 3,417 484
Currency effect (80) (156) (29) (265) (31)
Additions — — 59 59 24
Increase in companies consolidated — — — — —
Transfers to assets held for sale — (7) (1) (7) (20)
Decrease in companies consolidated — — — — —
Transfers — — — — 3
Disposals — — (35) (35) (30)
December 31, 2007/January 1, 2008 1,436 1,291 441 3,169 430
Currency effect 45 75 12 131 5
Additions 0 0 60 60 21
Increase in companies consolidated 18 27 20 65 12
Transfers from assets held for sale — — — — 44
Transfers to assets held for sale — (3) — (4) (6)
Decrease in companies consolidated — — — — —
Transfers — — (10) (10) 10
Disposals — 0 (6) (6) (27)
December 31, 2008 1,499 1,390 517 3,406 489
Accumulated depreciation /amortisation
January 1, 2007 — — 224 224 104
Currency effect — — (15) (15) (9)
Additions — — 64 64 22
Impairment — — — — 1
Write-ups — — — — —
Increase in companies consolidated — — — — —
Transfers to assets held for sale — — (1) (1) (10)
Decrease in companies consolidated — — — — —
Transfers — — — — —
Disposals — — (25) (25) (16)
December 31, 2007/January 1, 2008 — — 247 247 92
Currency effect — — 10 10 2
Additions — 0 61 61 25
Impairment — — — — 1
Write-ups — — — — —
Increase in companies consolidated — — — — —
Transfers from assets held for sale — — — — 3
Transfers to assets held for sale — — — — —
Decrease in companies consolidated — — — — —
Transfers — — — — (1)
Disposals — — (4) (4) (8)
December 31, 2008 — 0 313 313 116
Net carrying amount
December 31, 2006 1,516 1,454 223 3,193 380
December 31, 2007 1,436 1,291 194 2,922 338
December 31, 2008 1,499 1,390 204 3,093 373
Rounding differences may arise in percentages and totals,
196 Consolidated Financial Statements Statement of Movements of Intangible and Tangible Assets and Financial Assets
(Attachment I)
55 339 — 498 — — 23 23
(8) (30) — (47) — — — —
14 109 — 145 — — — —
— 2 — 3 — — 4 4
— (1) — (1) — — — —
— — — — — — — —
(2) (7) — (19) — — — —
— — — — — — — —
— — — — — — — —
(15) (34) — (65) — — — —
44 378 — 514 — — 27 27
— 7 — 9 — — — —
15 124 — 165 — — — —
— 5 — 6 — — — —
— — — — — — — —
— — — — — — — —
— 2 — 5 — — — —
— — — — — — — —
— — — — — — — —
(3) 4 — — — — — —
(6) (29) — (42) — — — —
50 490 — 656 — — 27 27
1 GEV Grundstücksgesellschaft Herzogenaurach mbH & Co. KG Herzogenaurach (Germany) EUR (706) directly 90
2 GEV Grundstücks-Beteiligungsgesellschaft Herzogenaurach mbH Herzogenaurach (Germany) EUR 33 directly 100
3 adidas Versicherungs-Vermittlungs GmbH 12) Herzogenaurach (Germany) EUR 26 directly 100
4 adidas Beteiligungsgesellschaft mbH 12) Herzogenaurach (Germany) EUR 354,103 directly 100
5 Immobilieninvest und Betriebsgesellschaft Herzo-Base Verwaltungs GmbH Herzogenaurach (Germany) EUR 29 directly 100
6 Immobilieninvest und Betriebsgesellschaft Herzo-Base GmbH & Co. KG Herzogenaurach (Germany) EUR 2,234 directly 100
7 World of Commerce Management GmbH 6) Herzogenaurach (Germany) EUR 25 directly 100
8 World of Commerce GmbH & Co. KG 6) Herzogenaurach (Germany) EUR 1 directly 100
9 Hotel Herzo-Base GmbH & Co. KG 6) Herzogenaurach (Germany) EUR 1 directly 100
10 Herzo-Base Management GmbH 6) Herzogenaurach (Germany) EUR 25 directly 100
11 Factory Outlet Herzo-Base GmbH & Co. KG 6) Herzogenaurach (Germany) EUR 1 directly 100
12 Reebok Deutschland GmbH Herzogenaurach (Germany) EUR 21,700 76 75
106 25
13 ASL – American Sports & Leisure Vertriebs GmbH 12) Herzogenaurach (Germany) EUR 1,226 12 100
14 Reebok-CCM Hockey GmbH Kirchheim-Heimstetten (Germany) EUR 3,310 112 100
32 Taylor Made Golf Ltd. Basingstoke (Great Britain) GBP (5,015) 20 100
33 adidas (Ireland) Ltd. Dublin (Ireland) EUR 14,256 20 100
34 adidas International Re Ltd. Dublin (Ireland) EUR 7,881 20 100
35 adidas Espana S.A. Zaragoza (Spain) EUR 34,533 4 100
36 adidas Italy S.p.A Monza (Italy) EUR 53,816 20 100
37 adidas Portugal S.A. Lisbon (Portugal) EUR 2,888 20 100
38 adidas Norge AS Lillestrom (Norway) NOK 72,608 directly 100
39 adidas Sverige AB Stockholm (Sweden) SEK 85,990 directly 100
40 adidas Suomi Oy Helsinki (Finland) EUR 3,479 20 100
41 adidas Danmark A /S Them (Denmark) DKK 9,427 20 100
42 adidas CR s.r.o. Prague (Czech Republic) CZK 231,200 directly 100
43 adidas Budapest Kft. Budapest (Hungary) HUF 1,114,604 directly 85
44 adidas Bulgaria EAD Sofia (Bulgaria) BGN 2,611 directly 100
45 adidas Ltd. Moscow (Russia) USD 342,573 17 100
46 adidas Poland Sp. z o. o. Warsaw (Poland) PLN 88,030 directly 100
47 adidas Romania S.R.L. Bucharest (Romania) RON 29,722 20 100
48 adidas Baltics SIA Riga (Latvia) EUR 362 20 100
49 adidas Slovakia s.r.o. Bratislava (Slovak Republic) SKK 250,238 directly 100
50 adidas Trgovina d.o.o. Ljubljana (Slovenia) EUR 1,352 directly 100
51 SC adidas-Ukraine Kiev (Ukraine) USD 69,049 directly 100
52 adidas Hellas A.E. Thessaloniki (Greece) EUR 8,456 directly 95
53 adidas Spor Malzemeleri Satis ve Pazarlama A.S. Istanbul (Turkey) TRY 139,918 20 100
54 a-RET Tekstil ve Deri Ürünleri Tic. A.S. Istanbul (Turkey) TRY 9,296 21 100
55 adidas Emerging Market L.L.C. Dubai (United Arab Emirates) USD 48,406 19 49
indirectly 51
56 adidas Emerging Markets FZE Dubai (United Arab Emirates) USD 272 20 100
57 adidas Imports & Exports Ltd. Cairo (Egypt) USD 5,476 58 100
58 adidas Sporting Goods Ltd. Cairo (Egypt) USD 14,018 21 10
20 90
59 adidas Egypt Ltd. 6) Cairo (Egypt) USD (1,832) directly 100
60 adidas Israel Ltd. Tel Aviv (Israel) ILS 1,916 directly 100
61 adidas (South Africa) (Pty) Ltd. Cape Town (South Africa) ZAR 152,268 directly 100
62 adidas (Cyprus) Limited Nicosia (Cyprus) EUR 3,285 directly 100
63 Rockport (Europe) B.V. Amsterdam (Netherlands) USD 5,964 107 100
64 Reebok Finance Limited 6) 11) Bolton (Great Britain) GBP — 106 100
65 Reebok International Limited 11) Bolton (Great Britain) GBP 804,770 20 65.1
106 34.9
1) Sub-group adidas UK 2) Sub-group Reebok International Ltd. 3) Sub-group India 4) Sub-group Mexico, adidas
5) Sub-group Mexico, Reebok 6) Companies with no active business 7) The number refers to the number of the company
8) Sub-group Onfield 9) Sub-group Reebok-CCM Hockey, Inc. 10) Sub-group Sports Holdings Corporation
11) Sub-group Reebok International Limited 12) Profit and loss transfer agreement 13) Sub-group Taylor Made Golf Co., Inc.
North America
95 adidas North America, Inc. Portland, Oregon (USA) USD 4,307,286 20 100
96 adidas America, Inc. Portland, Oregon (USA) USD (318) 95 100
97 adidas Promotional Retail Operations, Inc. Portland, Oregon (USA) USD 31,690 95 100
98 adidas Sales, Inc. Portland, Oregon (USA) USD 93,749 95 100
1) Sub-group adidas UK 2) Sub-group Reebok International Ltd. 3) Sub-group India 4) Sub-group Mexico, adidas
5) Sub-group Mexico, Reebok 6) Companies with no active business 7) The number refers to the number of the company
8) Sub-group Onfield 9) Sub-group Reebok-CCM Hockey, Inc. 10) Sub-group Sports Holdings Corporation
11) Sub-group Reebok International Limited 12) Profit and loss transfer agreement 13) Sub-group Taylor Made Golf Co., Inc.
132 Ashworth Acquisition Corp. 13) Wilmington, Delaware (USA) USD — 131 100
133 Ashworth U.K. Ltd. 13) Bristol (Great Britain) USD — 131 100
134 Ashworth Store I, Inc. 13) Wilmington, Delaware (USA) USD — 131 100
135 Ashworth Store II, Inc. 13) Wilmington, Delaware (USA) USD — 131 100
136 Ashworth EDC, LLC 13) Wilmington, Delaware (USA) USD — 131 100
137 Gekko Brands, L.L.C. 13) Montgomery, Alabama (USA) USD — 132 100
138 Kudzu, LLC 13) Montgomery, Alabama (USA) USD — 137 100
139 The Game, LLC 13) Montgomery, Alabama (USA) USD — 137 100
140 Sunice Holdings, Inc. 13) Wilmington, Delaware (USA) USD — 131 100
Asia
141 adidas Sourcing Ltd. Hong Kong (China) USD 458,423 21 100
142 adidas Services Limited Hong Kong (China) USD 3,234 20 100
143 adidas Hong Kong Ltd. Hong Kong (China) HKD 145,871 directly 100
144 adidas (Suzhou) Co. Ltd. Suzhou (China) CNY 59,018 4 100
145 adidas Sports (China) Co. Ltd. Suzhou (China) CNY 1,390,964 4 100
146 adidas (China) Ltd. Shanghai (China) CNY 78,621 20 100
147 adidas Japan K.K. Tokyo (Japan) JPY 26,665,820 65 100
148 Taylor Made Golf Co., Ltd. Tokyo (Japan) JPY 9,586,710 65 100
149 adidas Korea Ltd. Seoul (Korea) KRW 47,092,012 directly 100
150 adidas Korea Technical Services Ltd. Pusan (Korea) KRW (6,009,126) 141 100
151 Taylor Made Korea Ltd. Seoul (Korea) KRW 12,831,632 directly 100
152 adidas India Private Ltd. 3) New Delhi (India) INR (785,053) 20 1
directly 99
153 adidas India Marketing Private Ltd. 3) New Delhi (India) INR — 20 8.6
152 91.4
154 P.T. adidas Indonesia Ltd. Jakarta (Indonesia) IDR 5,535,273 20 99
directly 1
155 adidas (Malaysia) Sdn. Bhd. Kuala Lumpur (Malaysia) MYR 25,534 directly 60
20 40
156 adidas Philippines Inc. Manila (Philippines) PHP 153,220 directly 100
157 adidas Singapore Pte. Ltd. (Singapore) SGD 22,812 directly 100
158 adidas Taiwan Limited Taipei (Taiwan) TWD 408,978 20 100
159 adidas Holding (Thailand) Co., Ltd. Bangkok (Thailand) THB 21,555 directly 49
indirectly 51
160 adidas (Thailand) Co., Ltd. Bangkok (Thailand) THB 615,160 directly 49.99
159 50.01
161 adidas Australia Pty. Ltd. Mulgrave (Australia) AUD 27,903 20 100
1) Sub-group adidas UK 2) Sub-group Reebok International Ltd. 3) Sub-group India 4) Sub-group Mexico, adidas
5) Sub-group Mexico, Reebok 6) Companies with no active business 7) The number refers to the number of the company
8) Sub-group Onfield 9) Sub-group Reebok-CCM Hockey, Inc. 10) Sub-group Sports Holdings Corporation
11) Sub-group Reebok International Limited 12) Profit and loss transfer agreement 13) Sub-group Taylor Made Golf Co., Inc.
162 adidas New Zealand Ltd. Auckland (New Zealand) NZD 5,370 directly 100
163 adidas Technical Services Private Limited New Delhi (India) USD 133 141 100
164 Reebok Korea Ltd. Seoul (Korea) KRW 13,008,164 65 100
165 RIL Shanghai Company Limited Shanghai (China) CNY 783 65 100
166 Reebok India Company Unlimited New Delhi (India) INR 991,469 173 93.15
167 Smedley Industries (Hong Kong) Limited 9) 6) Hong Kong (China) HKD — 120 100
168 Reebok Trading (Far East) Ltd. Hong Kong (China) USD 42,563 106 100
169 Reebok (China) Services Limited Hong Kong (China) USD 7,558 168 100
170 Zhuhai adidas Technical Services Ltd. Zhuhai (China) USD 1,194 141 100
171 RIL Taiwan Services Ltd. Hong Kong (China) USD 1,418 168 100
172 RIL Indonesia Services Limited Hong Kong (China) USD 1,982 168 100
173 Reebok (Mauritius) Company Limited Port Louis (Mauritius) USD 2,242 106 99
110 1
Latin America
174 adidas Argentina S.A. Buenos Aires (Argentina) ARS 137,474 20 95
4 5
175 adidas do Brasil Ltda. São Paulo (Brazil) BRL 316,798 4 100
176 ASPA do Brasil Ltda. São Paulo (Brazil) BRL (42,897) 141 100
177 adidas Chile Ltda. Santiago de Chile (Chile) CLP 32,461,677 directly 99
3 1
178 adidas Colombia Ltda. Bogota (Columbia) COP 41,313,513 directly 100
179 adidas de Mexico S.A. de C.V. 4) Mexico City (Mexico) MXN 290,444 directly 100
180 adidas Industrial S.A. de C.V. 4) Mexico City (Mexico) MXN — directly 100
181 adidas Latin America S.A. Panama City (Panama) USD (13,050) directly 100
182 Concept Sport S.A. Panama City (Panama) USD 444 20 100
183 3 Stripes S.A. (adidas Uruguay) 6) Montevideo (Uruguay) UYU (436) directly 100
184 adidas Corporation de Venezuela, S.A. 6) Caracas (Venezuela) VEF (17) directly 100
185 Reebok de Mexico, S.A. de C.V. 5) Neucalpan de Juarez (Mexico) MXN (137,216) 106 100
186 Amserv, S.A. de C.V. 5) Neucalpan de Juarez (Mexico) MXN — 185 100
187 Vector Servicios, S.A. de C.V. 5) Neucalpan de Juarez (Mexico) MXN — 185 100
188 Reebok Productos Esportivos Brasil Ltda. Jundiai (Brazil) BRL 16,970 20 99.99
189 adisport Corporation San Juan (Puerto Rico) USD (415) 20 100
190 Reebok Argentina S.A. Buenos Aires (Argentina) ARS 7,511 20 89.99
21 10.00
1) Sub-group adidas UK 2) Sub-group Reebok International Ltd. 3) Sub-group India 4) Sub-group Mexico, adidas
5) Sub-group Mexico, Reebok 6) Companies with no active business 7) The number refers to the number of the company
8) Sub-group Onfield 9) Sub-group Reebok-CCM Hockey, Inc. 10) Sub-group Sports Holdings Corporation
11) Sub-group Reebok International Limited 12) Profit and loss transfer agreement 13) Sub-group Taylor Made Golf Co., Inc.
2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
Brands
adidas
Net sales 7,821 7,113 6,626 5,861 5,174 4,950 5,105 4,825 4,672 4,427
Gross profit 3,802 3,370 3,059 2,654 2,284 2,008 2,004 1,845 1,907 1,827
Gross margin 48.6% 47.4% 46.2% 45.3% 44.1% 40.6% 39.2% 38.2% 40.8% 41.1%
Operating profit 1) 1,098 920 788 693 564 365 343 352 391 431
Operating margin 1) 14.0% 12.9% 11.9% 11.8% 10.9% 7.4% 6.7% 7.3% 8.3% 9.6%
Operating assets 3,872 3,329 3,211 2,536 2,089 2,172 2,294 1,954 2,286 1,987
Reebok 2)
Net sales 2,148 2,333 2,473 — — — — — — —
Gross profit 795 902 865 — — — — — — —
Gross margin 37.0% 38.7% 35.0% — — — — — — —
Operating profit (7) 109 86 — — — — — — —
Operating margin (0.3%) 4.7% 3.5% — — — — — — —
Operating assets 3,033 2,913 3,217 — — — — — — —
TaylorMade-adidas Golf 3)
Net sales 812 804 856 709 633 637 707 545 441 327
Gross profit 359 360 376 312 298 290 345 281 221 160
Gross margin 44.3% 44.7% 43.9% 44.0% 47.0% 45.5% 48.8% 51.5% 49.5% 48.4%
Operating profit 1) 78 65 73 50 48 67 74 63 44 30
Operating margin 1) 9.6% 8.1% 8.5% 7.1% 7.5% 10.6% 10.5% 11.5% 10.0% 9.2%
Operating assets 748 629 656 692 619 391 433 316 219 156
1) Figures prior to 2004 exclude royalty and commission income and goodwill amortisation.
2) Consolidated in adidas Group from February 1, 2006 onwards.
3) Including Greg Norman apparel business from February 1, 2006 to November 30, 2006.
4) 2004 and 2005 reflect continuing operations as a result of the divestiture of the Salomon business segment.
5) Including Reebok business segment from February 1, 2006 onwards. Including Greg Norman apparel business from February 1, 2006 to November 30, 2006.
2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
Regions 4) 5)
Europe
Net sales 4,665 4,369 4,162 3,166 3,068 3,365 3,200 3,066 2,860 2,723
North America
Net sales 2,520 2,929 3,234 1,561 1,332 1,562 1,960 1,818 1,906 1,826
Asia
Net sales 2,662 2,254 2,020 1,523 1,192 1,116 1,166 1,010 875 663
Latin America
Net sales 893 657 499 319 224 179 163 178 171 126
1) Figures prior to 2004 exclude royalty and commission income and goodwill amortisation.
2) Consolidated in adidas Group from February 1, 2006 onwards.
3) Including Greg Norman apparel business from February 1, 2006 to November 30, 2006.
4) 2004 and 2005 reflect continuing operations as a result of the divestiture of the Salomon business segment.
5) Including Reebok business segment from February 1, 2006 onwards. Including Greg Norman apparel business from February 1, 2006 to November 30, 2006.
2008 2007 2006 1) 2005 2004 2003 2002 2001 2000 1999
2008 2007 2006 1) 2005 2004 2003 2002 2001 2000 1999
Employees
Number of employees at year-end 2) 38,982 31,344 26,376 15,935 14,254 15,686 14,716 13,941 13,362 12,829
Personnel expenses 2) (€ in millions) 1,283 1,186 1,087 706 637 709 758 695 630 580
1) Including Reebok business segment from February 1, 2006 onwards. Including Greg Norman apparel business from February 1, 2006 to November 30, 2006.
2) 2004 and 2005 reflect continuing operations as a result of the divestiture of the Salomon business segment.
3) Operating profit figures prior to 2004 exclude royalty and commission income and goodwill amortisation.
4) 2003 and 2004 figures have been restated due to application of IAS 32/IAS 39 and amendment to IAS 19.
5) Includes income from continuing and discontinued operations.
6) Figures adjusted for 1: 4 share split conducted on June 6, 2006.
7) Subject to Annual General Meeting approval.
8) Based on number of shares outstanding at year-end.
American Depositary Receipt (ADR) US-traded negotiable certificate of a foreign-based Consumer price index (CPI) Measure of the average price of consumer goods and services
company held by a US bank that entitles the holder to all dividends and rights of the underlying purchased by households. Determined by measuring the price of a standard group of goods
stock. ADRs provide a way for Americans to invest in foreign-based companies by buying their meant to represent the typical market basket of a typical urban consumer. The percentage
shares in the USA instead of through an overseas exchange. change in the CPI is a measure of inflation.
Asset coverage I & II The extent to which a company’s non-current assets cover its debt Commercial paper Tradable unsecured promissory notes issued for the purpose of short-
obligations. term financing. Commercial paper is issued on an ongoing, revolving basis with maturities
They are expressed as a percentage and calculated as follows: typically between seven days and 12 months or more.
Asset coverage I (%) = (equity + non-current liabilities) / non-current assets.
Asset coverage II (%) = (equity + non-current liabilities) / (non-current assets + inventories). Concession corners Retail space that is fully operated by one brand within the adidas Group
and is part of a larger sales area operated by a retail partner.
Athletic specialty A largely mall-based retail distribution concept in North America that
focuses primarily on selling sports and sports lifestyle products to consumers. Controlled space Controlled space includes own-retail business, mono-branded stores, shop-
in-shops, joint ventures with retail partners and co-branded stores. Controlled space offers
Backlogs Also called order backlogs. The value of orders received for future delivery. At a high level of brand control and ensures optimal product offering and presentation according to
adidas and Reebok, most retailers’ orders are received six to nine months in advance, depending brand requirements.
on the season.
Convertible bond Corporate bond that can be exchanged for a specific number of shares of
Basic Earnings Per Share (Basic EPS) Performance indicator used to gauge a company’s a company’s common stock. Convertible bonds tend to have lower interest rates than non-
earnings per share, based on the number of shares outstanding (excluding stock options, as convertibles because they also accrue value as the price of the underlying stock rises. In this
well as options and conversion rights related to a convertible bond). way, convertible bonds reflect a combination of the benefits of stocks and those of bonds.
Basic EPS = net income / weighted average number of shares outstanding during the year.
see also Diluted Earnings Per Share Corporate Governance Distribution of rights and responsibilities among the primary stake-
holders in a company, in particular shareholders, the Executive Board and the Supervisory
Beta factor Indicates a stock’s relative risk. A beta coefficient of more than one indicates that Board.
the stock has a higher risk than the overall market. Conversely, a beta coefficient of less than
one indicates a lower risk. Cost of sales Costs of sourcing and manufacturing products. This figure includes costs for
raw materials plus costs of production, freight, customs and delivery to the adidas Group’s
Computer Aided Design (CAD) A computer application to aid in the design process. sales organisations.
Capital expenditure Total cash expenditure used for the purchase of tangible and intangible Credit spread Risk premium which represents the yield difference between risk-free
assets, excluding acquisitions and finance leases. government bonds and corporate bonds with the same duration. A potential investor demands
an additional yield (risk premium = credit spread) for the higher risk of default with corporate
Classics Reebok products designed in an authentic heritage style, targeting sports lifestyle bonds versus government bonds.
consumers who seek trendsetting streetwear with authentic origins.
Electromyography Technique for evaluating and recording the activation signal of muscles.
Go to market All instruments, tools and channels used to connect with consumers in order to Interest coverage Indicates the ability of a company to cover net interest expenses with
best fulfil their needs. income before net interest and taxes.
Interest coverage = income before interest and tax / interest.
Goodwill Intangible asset that quantifies the price that a buyer of a company has paid for the
reputation, know-how and market position of the acquired company. Goodwill is the excess of Interest rate cap Option contract which places an upper limit on a floating interest rate. The
the amount paid over the fair value of the net assets acquired at the purchase date. writer of the cap is required to pay the holder of the cap the difference between the floating rate
and the reference rate when that reference rate is exceeded. There is a premium to be paid by
Green grass retailers Golf distribution channel. Small golf specialty shops typically located at the buyer of such a contract as the market price for the potential pay-out.
a golf course.
International Accounting Standards Board (IASB) Independent, privately-funded cooperation
Gross Domestic Product (GDP) Market value of all finished goods and services produced of professional associations dealing with matters of financial accounting and setting and pro-
within a country in a given period of time. moting the IFRS (formerly IAS).
GDP = consumption + investment + government spending + (exports − imports).
International Financial Reporting Interpretations Committee (IFRIC) Accounting body which
Gross margin Gross profit as a percentage of net sales. rules on controversial accounting issues. Its interpretations are approved by the International
Gross margin = (gross profit / net sales) × 100. Accounting Standards Board (IASB) and, once adopted, are binding on all International Financial
Reporting Standards (IFRS) users.
Gross profit Difference between net sales and the cost of sales.
Gross profit = net sales – cost of sales. International Financial Reporting Standards (IFRS) Reporting standards (formerly called
IAS) which have been adopted by the International Accounting Standards Board (IASB). The
Hardware Product category which comprises sports equipment that is used rather than worn objective is to achieve uniformity and transparency in the accounting principles that are used
by the athlete, such as bags, balls, fitness equipment, golf clubs and hockey sticks. by businesses and other organisations for financial reporting around the world.
Hedging A strategy used to minimise exposure to changes in prices, interest rates or Investments see Capital expenditure
exchange rates by means of derivative financial instruments (options, swaps, forward contracts,
etc.). Joint venture A cooperation between companies involving the foundation of a new, legally
see also Natural Hedges independent business entity in which the founding companies (two or more companies) partici-
pate with equity and significant resources.
Hybrid Golf clubs, cross between a wood and an iron, aggregating typical characteristics of
both clubs. Often referred to as “rescues”. Key accounts Wholesalers or retailers which are primary customers and account for a large
percentage of sales.
In-house bank Internally and centrally managed cash liquidity within the adidas Group
network of subsidiaries. Organisation and implementation through the adidas Group’s Treasury Licensed apparel Apparel products, which are produced and marketed under a license
department. agreement with a sports organisation (e.g. FIFA, UEFA, IOC), sports league (e.g. NFL, NBA),
professional team (e.g. Real Madrid, AC Milan) or university (e.g. UCLA, Notre Dame). If visible,
Initial Public Offering (IPO) First placement of a corporation’s common shares on an the supplier’s branding is secondary.
organised market.
Licensed business For certain product categories, independent third parties are authorised
to use the name of a brand or company to manufacture and distribute products. For the adidas
Group, for example, licensed business is comprised of royalty income e.g. for cosmetics,
watches and eyewear at adidas and fitness equipment at Reebok see also Product licensees .
Option Financial instrument which ensures the right to purchase (call option) or to sell (put Purchase price allocation (PPA) Stipulated by IFRS regulations. Allocation of the purchase
option) a particular asset (e.g. shares or foreign exchange) at a predetermined price (strike price paid for an acquisition according to the fair values assigned to acquired assets and
price) on or before a specific date. liabilities.
Order backlogs see Backlogs Record date Date by which a shareholder must own a company’s shares in order to be able to
register for participation in the Annual General Meeting. According to German law, the record
Own-retail activities Sales directly generated through a store operated by a brand segment date is twenty-one days before the Annual General Meeting.
within the adidas Group. Own retail includes Concept Stores (e.g. adidas Sport Performance,
Originals and Sport Style) and concession corners as well as factory outlets and e-commerce Regions The adidas Group segments its worldwide business into four regions: Europe, Asia,
for the adidas, Reebok and Rockport brands. North America and Latin America. Whereas North America and Latin America match the actual
geographical classification, Europe also includes Africa and the Middle East, and Asia addition-
Performance business In the sporting goods industry, business related to technical footwear ally comprises the Pacific region, i.e. Australia and New Zealand.
and apparel, used primarily in doing sports.
Retail investor Individual who purchases securities for him-/herself, as opposed to an institu-
PGA Tour Major US men’s professional golf tour, featuring 49 golf tournaments. tional investor.
Price-earnings ratio (P/E) A company’s share price divided by its current or future diluted Return on capital employed (ROCE) Measure of the returns that a company is realising from
earnings per share. The P/E ratio is used by investors as a fundamental measure of the attrac- its capital.
tiveness of a particular security versus other securities or the overall market. It is usually ROCE = (income before taxes + financial result + extraordinary income) / (average of share-
more useful to compare P/E ratios of one company to other companies in a similar industry. In holders’ equity + minority interests + total net borrowings).
general, a high P/E ratio suggests that investors are expecting higher earnings growth in the
future compared to companies with a lower P/E. Return on equity (ROE) Indicator of company profitability related to the shareholders’
financing.
Price points Specific selling prices, normally using “psychological” numbers, for example a ROE = net income / shareholders’ equity.
product price of US $ 99.99 instead of US $ 100.
Risk-free rate Rate of return to be expected on a risk-less investment, e.g. federal bonds.
Private placement Placement of debt securities directly to institutional investors, such as
banks, mutual funds, insurance companies, pension funds and foundations. Season At the adidas Group, we typically design and produce two major collections per year
– a Spring /Summer and a Fall / Winter collection. Hence, we divide our business into a Spring /
Product licensees Companies that are authorised to use the name of a brand or company to Summer and a Fall / Winter season accordingly.
manufacture and distribute products. For adidas, these products primarily include cosmetics,
watches and eyewear, for Reebok fitness equipment and for TaylorMade-adidas Golf bags and Second tier supplier Also tier-two supplier. Supplier who provides the adidas Group with
gloves. materials and components to be used in the production of finished products, but does not
manufacture products.
Promotion partnerships Partnerships with events, associations, leagues, clubs and individual
athletes. In exchange for the services of promoting the adidas Group, the party is provided with Segment Also Business Segment. Units within a company that have profit and loss respon-
cash and /or promotional material. sibility.The adidas Group is currently divided into four major business segments: adidas,
Reebok, TaylorMade-adidas Golf and HQ /Consolidation.
Supply chain Refers to the system and organisation from product sourcing through to end
customer delivery.
Swaps A derivative in which two counterparties agree to exchange one stream of cash flows
against another stream.
March 4, 2009
2008 Full Year Results
Analyst and press conferences in Herzogenaurach, Germany
Press release, conference call and webcast
May 5, 2009
First Quarter 2009 Results
Press release, conference call and webcast
May 7, 2009
Annual General Meeting in Fürth/Bavaria, Germany
Webcast
May 8, 2009
Dividend paid
(Subject to Annual General Meeting approval)
August 5, 2009
First Half 2009 Results
Press release, conference call and webcast
November 4, 2009
Nine Months 2009 Results
Press release, conference call and webcast
Contact
adidas AG
Adi-Dassler-Str. 1
91074 Herzogenaurach
Germany
Tel: + 49 (0) 91 32 84 – 0
Fax: + 49 (0) 91 32 84 – 22 41
www.adidas-Group.com
Investor Relations
Tel: + 49 (0) 91 32 84 – 29 20 / 21 87
Fax: + 49 (0) 91 32 84 – 31 27
email: investor.relations@adidas-Group.com
www.adidas-Group.com / investors
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